Sales tax concerns if you sell through multiple channels
Businesses have new ways to sell today, as marketplaces such as Amazon, TikTok and the business’s...
Adding a new product is great, new revenue streams are wonderful. Just don’t let sales tax turn the situation into a nightmare.
Think “nightmare” is too strong? Consider:
Your new product is not taxed but should have been. In the first year, your sales total is $100,000 (the economic nexus threshold in many states) and grows 20% annually over the next three years, for a total of $364,000 in sales. At an average sales tax rate of 8%, that’s more than $29,000 in uncollected sales tax in just one jurisdiction. Additional penalties and interest could take the total exposure to close to $40,000.
(Taxability of products and services was once again a top worry in our latest sales tax survey of financial professionals.)
Scary. And even if your company has a solid handle on the taxability of its current products, new ones can ignite sales tax obligations you might not learn about until it’s too late.
Everything changes
Sales tax regulations can seem like one of those black-and-white checkered rooms in your local haunted house attraction.
Even if you simply add tangible personal property to your product line (or TPP, which is generally taxable), you have to research a number of factors to determine how much sales tax to collect and remit.
What you sell matters, too
Suppose your new product isn’t flat-out TPP but some mutant (at least in the many eyes of the many tax jurisdictions you sell into)?
Taxability becomes confusing, for instance, with software, which tends to have varying tax rules state-to-state. Is it Software-as-a-Service (SaaS)? How is it delivered? Are there maintenance or support services included with the software? Is the maintenance or support optional or mandatory? These questions matter when determining whether sales tax applies. Similarly, taxability is confusing for telecommunications services, which can be subject to sales tax and communications taxes.
In fact, if you’ve brought a new service to market, you’re in a segment ripe for a sales tax upheaval: More and more states’ lawmakers see taxing remotely delivered services as a potential big new source of revenue.
Generally, digital products are “intangible” and sent to your customers electronically. These products include digital books, music, internet TV and streaming media, webinars, subscriptions and apps, among many other products. So intangible and so not taxable, right? Not always the case.
This is just a sample of the dangers, but clearly failing to keep up on the latest developments can land you and your new product in a sales tax version of “The Pit and the Pendulum.”
Understanding the taxability of your company’s products or services old or new is one of the key steps to complying with sales and use tax laws nationwide. To learn how TaxConnex helps their clients remove the burden of sales tax – get in touch!
Businesses have new ways to sell today, as marketplaces such as Amazon, TikTok and the business’s...
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