If you sell into the handful of states that don’t have nexus or don’t have a general sales tax, you might think you’re home free when it comes to obligations to remit sales tax. Maybe, and maybe not.
Forty-five states and the District of Columbia have a statewide sales tax. Alaska, Delaware, Montana, New Hampshire and Oregon do not. (Local jurisdictions in some of these, however, can charge sales tax based on state nexus thresholds and other criteria.) Florida and Missouri have sales tax but have not adopted economic nexus standards. Yet.
Here’s a closer look at managing sales tax obligations across these seven states.
No sales tax but…
Among states that have no statewide sales tax:
New Hampshire: No sales tax affecting businesses at the state or local level. Some excise taxes are levied such as room, pre-prepared food, car rentals and phone services, but New Hampshire currently does not assess sales tax within the state.
Oregon: No state-wide sales tax, though cities are allowed to impose their own sales taxes. (The City of Ashland has a 5% tax on prepared food, for example.) There are also excise taxes in the state on such items as tobacco, alcohol and some other products; and Oregon recently introduced a Corporate Activity Tax.
Delaware: No state sales tax but Delaware does require certain businesses/sellers to pay a gross receipts tax that varies based on business activity.
Delaware maintains that in-state online companies are treated the same for sales tax purposes as companies doing business by traditional means. A server located in the state, to give one example, could create nexus.
Delaware does have an annual by-nexus business license requirement and levies a gross receipts tax on the seller of goods or provider of services. Sales of goods are subject to Delaware gross receipts tax as a wholesale sale (where the goods are re-sold) or as a retail sale (where the goods are consumed by the purchaser). Wholesale sales are based on destinations within the state and retail sales are based on the passage of title within Delaware. Delaware’s corporate income tax can apply to sales of goods physically delivered in the state.
The state has a questionnaire to help companies determine if they have nexus.
In Alaska, there’s also no statewide sales tax but a growing number of municipalities are banding together to require that online companies collect and remit local sales taxes. The collecting of tax on purchases from outside vendors is reportedly projected to take in between $8 million and $10 million in new revenue this year.
Formed in late 2019, the Alaska Remote Sellers Sales Tax Commission comprises 33 communities and helps local governments collect sales tax from purchases made from outside Alaska, including online. More than 100 other communities could soon join the list, which currently includes Juneau, Wasilla, Seward, Nome and Kodiak.
The commission requires companies operating remotely and making more than $100,000 in sales annually or with more than 200 annual sales across Alaska to remit taxes.
Montana, with no statewide sales tax, resembles Alaska in allowing localities to assess a sales tax, though these are small, tourist-destination cities that charge sales and use tax on items and services not usually sold online.
Out-of-state businesses with nexus in Montana may be required to obtain a seller’s permit and to charge, collect and remit local taxes. The state maintains a questionnaire to help determine if abusiness has nexus in Montana.
Where nexus looms
Two states can charge sales tax on online transactions in unusual ways.
In Missouri, sales tax is imposed on retail sales of tangible personal property and certain services; all sales of tangible personal property and taxable services are generally presumed taxable unless exempted. Use tax is imposed on the storage, use or consumption of tangible personal property in this state. Both rates are 4.225%. Cities, counties and certain Missouri districts may also impose local sales taxes.
Generally, a business has nexus in Missouri when it has a physical presence there, such as a retail store, warehouse or inventory or the regular presence of traveling salespersons or representatives. Out-of-state sellers can also establish nexus with ties to businesses in Missouri, including affiliates. Referrals, including online referrals, from in-state entities can also trigger nexus for out-of-state businesses. (Here’s a typical case regarding an online shoe seller.)
Several bills have been introduced in the Missouri legislature to create economic nexus, but none have passed yet.
Florida is the other state that collects sales tax but has yet to enact economic nexus laws, following only physical nexus requirements to establish nexus. Without a physical presence in Florida (possibly through offices, contractors, warehouses, or even attending tradeshows), a company won’t have a sales tax obligation.
Efforts to create economic nexus laws have stalled in the Sunshine State but the idea is gaining support. Florida tax revenue relies heavily on tourism, an industry hurt by the pandemic. The drop in revenue from retail and hospitality sales has caused an even larger impact because of Tallahassee not collecting sales tax from online purchases. Florida may well be next to enact economic nexus laws.
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