Determining your sales tax obligations hinges on if your products or services are taxable and whether you have sales tax nexus which can be defined as either a physical presence or economic presence. That by itself is confusing enough, and unfortunately it gets more confusing.
Focusing on economic nexus, each state defines certain thresholds that include the amount of revenue sourced to a particular state and/or the number of invoices in a particular state. An additional layer of complexity requires you to consider not just taxable sales but gross sales as well – as some states’ revenue thresholds are defined by the taxable sales rather than the gross sales sourced into the state.. Toss in that tax jurisdictions are constantly changing how much gross sales contribute to economic nexus and you have the potential for confusion – and compliance penalties.
Here’s a look at some of the latest developments regarding gross sales and economic nexus.
Economic nexus requires remote sellers to collect sales tax because they hit set thresholds for state and jurisdiction revenue. Widespread economic sales tax nexus standards started four years ago with the Supreme Court’s Wayfair decision.
All states with a sales tax have since established economic nexus standards: $100,000 in sales or 200 transactions in the previous or current calendar year, for example. Remote sellers who sell above those quantities in a state must collect sales tax and remit it to the state.
Most states set their own parameters – and one of those parameters can involve including sales of items exempt from sales tax. In general, exemptions are statutory exceptions eliminating the need for the retailer to collect sales tax on a particular transaction or on all transactions with a customer. (The most common is a “sale for resale,” which allows retailers to purchase products from wholesalers free of tax.)
In addition, most states determine their threshold numbers by gross sales from all revenue sources, whether they’re taxable or not. Currently, states with an economic nexus threshold that don’t include gross sales include Alabama, Arkansas, Colorado, Minnesota (though there are special rules concerning “solicitors” in the state) and Oklahoma.
The marketplace facilitator question
Be aware too that if you also sell products or services off of your own site as well as through a marketplace facilitator, you may have nexus in more states than you realize. This becomes important when a state has both marketplace facilitator laws and economic nexus laws (which is of course now most states), though some states, like Florida, do not count sales through a marketplace facilitator when determining the threshold for economic nexus.
Marketplace facilitators sometimes have their own nexus concerns over gross receipts. New sales tax collection and remittance requirements in Kansas, for instance, apply to marketplace facilitators with calendar year sales sourced into the state exceeding $100,000 of “cumulative gross receipts,” which includes both the marketplace facilitator’s sales of its own property and services and the sales it facilitates on its platform.
Ensure you know which states they are and that you will have to manage them differently than the rest. And be sure to check frequently – rules change fast.
If you need help understanding your sales tax obligations and whether you should be collecting sales tax, get in touch. TaxConnex has experts to help answer these questions and to help you establish an ongoing process to ensure you remain compliant – even with the frequently changing rules of sales and use tax.