Sales and use tax nexus has become a major headache for any business that sells into the United States. But what exactly is nexus for sales and use tax purposes, and where does it come from, anyway?

Businesses who sell over the internet must pay a lot of attention to far-flung economic tax thresholds – almost all states and more than a few localities enforce them now – so it’s easy to overlook a more-obvious tripwire.

You might be thinking, “Sales tax. Let them find me.”

If you thought 2019 was a confusing year for sales tax, wait for 2020, as more states continue to adjust their sales-tax laws.

Twenty-four states and the District of Columbia added enforcement of economic nexus in 2019, in addition to the 19 that added the burden to online retailers in 2018 after the Supreme Court overruled the physical presence rule in South Dakota v. Wayfair, Inc. More than ever, out-of-state sellers with threshold limits of sales in a given state must collect and remit sales tax.

Economic nexus laws are expected to continue to change in 2020 with updates projected from several states and with the addition of more states adopting Marketplace facilitator laws there is even more to keep watch for.  

As we enter 2020, we have a lot to be thankful for at TaxConnex™.  In fact, 2019 was a record-breaking year for our company, and we couldn’t have done it without all of our partners, employees, and clients. 

Online retailers definitely have something to be smiling about this season. Cyber Monday saw Americans drop $9.4 billion. That figure is up 20% from last year’s $7.9 billion in online sales and it beat this year’s Black Friday’s sales.

As if sales tax wasn’t enough for online retailers, some states are working to make retailers pay corporate income tax as well.

The amount of corporate income taxed will be based on the retailer’s local economic activity, similar to how many assess sales tax.  Many of these new laws will kick in next year, giving retailers a Happy New Year gift of more forms to file, more money to shell out and more compliance traps to fall into.

Another tax notice just landed on your desk. Ouch. You thought you had this solved with the “fully-integrated, simple, seamless, comprehensive, customized sales tax solution” that you paid an arm and a leg for. It sure sounded great at first. This was going to make sales tax unbelievably easy – and free up your time for more strategic stuff. So why are you still scrambling to correct errors, confirm nexus, send payments, manage tax calendars, and double check everything your provider does?

Why would states go through all the trouble of enacting economic nexus to grow their tax coffers and then ease off on the restrictions - especially big states like New York and California, which were once expected to garner nine and even ten figures in tax revenue from nexus legislation?

In the 17 months since the South Dakota vs Wayfair decision, some states have begun reporting their revenues against predicted numbers. Among the first are South Carolina, Iowa and Massachusetts – and results are mixed.

The American Catalog Mailers Association has released results of their survey regarding how remote retailers of all sizes were affected by the South Dakota v. Wayfair Inc. decision.

States predicted minimal harm to direct/online retailers from this decision but the survey results claim a different story:

I am honored to share that TaxConnex has recently been selected by Venture Atlanta to Present at Venture Atlanta 2019.  Venture Atlanta, the Southeast’s technology innovation event, is where the region’s most promising tech companies meet the country's top-tier investors.

I get the opportunity to talk to many businesses and CPA firms about our sales tax outsourcing services at TaxConnex.  When most of the people we talk to refer to sales tax compliance, they are thinking about tax return preparation only.   They never consider the other components of compliance. 

I had a sales call this week with a very experienced CFO for a group of start-up technology companies.   Over the course of the last couple of years, this CFO became aware of sales tax responsibilities for some of his companies and had begun building processes to identify prior period exposure and to manage the prospective sales tax compliance process. 

Over the years, I have come to respect the uniqueness of our business and how we help companies comply with the myriad sales tax laws.   Like most government mandated activities, businesses get absolutely no “value add” by completing forms, submitting information and remitting taxes and fees to government agencies.  I have never heard of a business growing revenue or creating efficiency by complying with government red tape.  

I heard a story about Chick-Fil-A on the radio this weekend that has reminded me about the importance of service.

My apologies in advance to Chick-Fil-A and the characters in the story to the extent I get the details wrong, but I believe I am getting the moral of the story right.  Here we go…at a strategy meeting of Chick-Fil-A executives, they were discussing the need for faster growth to fend off another competitor that seemed to be growing faster at the time.  After listening intently to the discussion, Truett Cathy – the much revered and respected founder of Chick-Fil-A – stopped the conversation and stated that he did not want to hear anything else about fast growth.  He wanted to discuss how Chick-Fil-A could get better.  He said if Chick-Fil-A gets better, the market will demand they get bigger.  Based on the results, I think Truett Cathy has proven he was right!

As the founder and leader of TaxConnex, I am always trying to push for faster growth.  I measure part of our success on year over year revenue growth because businesses with fast growing revenue are deemed more valuable and exciting. 

There is definitely truth in this, but fast growth does not mean the business is getting better at what they do. 

We see this in the sales tax compliance industry, which is dominated by fast growing technology companies.  These businesses have created and built software applications using the latest technologies – e.g., “the cloud” – and developed a very appealing message of push button simplicity.  There are definitely aspects of sales tax compliance that demand and require the latest and greatest software technologies, but there is a significant aspect of sales tax compliance that also requires good old fashion service.  

It is critically important for businesses in sales tax compliance to strive to get better whether we provide technology or service.

TaxConnex is a premier service provider that uses proprietary and licensed software solutions to manage the financial risk of all or part of a business’s sales tax compliance responsibilities.  I am reminded by Chick-Fil-A that my goal for fast growth will only be achieved if we constantly get better at what we do.