Wholesalers and manufacturers/distributors have some big advantages regarding sales tax compliance – but they can also have hidden obligations.
Wholesalers generally don’t sell to the public but there are times, especially within the last few years, where many wholesalers have added shopping carts to their own websites to catch the small number of consumers that may want to shop direct.
Transactions involving wholesale are generally free of sales tax, both the collecting and the paying of it (provided you have the proper documentation), but what about those direct sales from your website – are you supposed to charge sales tax? It depends.
Sales made through your own website will be subject to sales tax once you’ve established nexus. If you’ve registered for sales tax purposes in any states, including states in which you have a physical presence (office, warehouse, inventory storage, etc..), you are required to collect sales tax from customers based in those locations. For customers outside of those locations, you will need to monitor economic nexus thresholds similar to any other eCommerce business. But it is not only the revenue and transactions from your own site that you need to monitor. For many states, gross receipts count toward economic nexus thresholds – and gross receipts of sales for a manufacturer/wholesaler can be a significant portion of your sales.
Suppose you hit a state’s economic nexus threshold of $100,000 in sales into that state for a year. Of that $100,000, it’s quite possible that $80,000 comes from wholesale transactions where no sales tax was collected and the remaining $20,000 is related to direct sales from your e-commerce site. The combination of wholesale transactions and direct sales puts you at the economic nexus threshold – requiring you to register for sales tax and begin collecting and remitting sales tax on the $20,000 of taxable sales.
In short, manufacturers selling products off their own website as well as through other channels may have nexus in more states than they realize – and more filing obligations.
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 with the frequently changing rules of sales and use tax.