Technology companies frequently engage in sales tax nexus creating activities without realizing it. Many different activities can create “nexus”, the link that establishes the need for a seller to adhere to the jurisdiction’s sales tax rules. And with the introduction of economic nexus in 2018, it has become even more confusing.
If you are a technology company trying to determine your sales tax nexus footprint, ask yourself these 5 questions.1. Do you sell into states other than your home state?
Physical nexus has been the standard for many years, but since the introduction of Economic Nexus after the Wayfair Decision in 2018, technology companies also need to monitor the thresholds of sales they are making outside of their home state. Check out current economic nexus standards2. Do you have affiliate relationships (for generating sales) with out-of-state companies?
The relationship established through an affiliate program or partnership can create a physical presence for businesses. Technology companies should review their affiliate programs and understand which states, specifically, have “Amazon Laws” or “Click-Through Nexus” rules. This is a constantly changing area that requires close monitoring.3. Do your sales representatives travel outside of your home state?
A sales rep traveling into a state even if only for a day or two (depending on which state it is), could create nexus for your business within that state. Many companies may consider conducting product demonstrations via the Internet through Webex, GoToMeeting, or another similar application before making a face to face meeting in order to not create nexus until other thresholds are met.4. Do you exhibit at trade shows outside of your home state?
Many states have established a specific number of days a company can exhibit/solicit at a conference or tradeshow within their state before they create nexus. Technology companies that frequently participate in conferences and tradeshows should understand the sales tax nexus thresholds associated with each state for this type of activity.5. Do you have employees or agents that perform services on your behalf outside of your home state?
Businesses that send employees into a state to provide implementation, installation or repair services are creating nexus for sales and use tax purposes. Technology companies should evaluate non-selling related activities they perform in each state including installation and maintenance/support services as well as services provided via third party representatives when assessing their sales and use tax nexus footprint.
If you answered “yes” to one or more of these questions, you could be creating a sales tax liability outside your home state. Contact Us for questions on staying compliant and to better understand your sales tax nexus footprint.
Need more information? Download our eBook – Sales Tax Nexus for Technology Companies.