Strange Ideas New Customers Have About Sales Tax

Everybody who enters business knows all about taxes. They just don’t know about every tax. One glaring omission, surprising especially from business owners, is sales tax. 

For example, laws governing marketplace facilitators popped up when states saw that platforms were charging sales tax on the sale of their own or certain third-party sales but not on all sales. Wherever this revenue was going, the state wanted it, and nexus laws were born.  

Here Are Some of The Biggest Misconceptions

Economic Nexus - "But I’ve been selling there for years with no trouble."

After the Supreme Court Wayfair decision in 2018, in which a large retailer found themselves nationwide, many states created their own brand of economic nexus; many companies suddenly became responsible for collecting and remitting sales tax if they generated enough revenue or transactions in a given period, generally a year. 

Thankfully most states did not enforce their economic nexus requirements to dates before 2018. Nevertheless, companies had to scramble to establish systems to monitor their new sales tax obligations. 

Physical Nexus - "All I’ve got is one tiny office there. One rep cutting though the state for little business now and then.”

Economic nexus may seem more familiar than physical: If you have a store or an employee in a state or jurisdiction, you likely have physical sales tax nexus there. 

One eternal sales tax myth is that a business must be physically headquartered in a state to trigger obligations to collect and remit sales tax. Not anymore: You might also trigger nexus with sales reps traveling into another state (where they aren’t based); technicians traveling into another state to perform service calls; an affiliate or agent; maintaining equipment or inventory in a state (maintained even by a marketplace facilitator, though this has been successfully contested in court); or, in some cases, remote workers. 

“Everything I sell is taxable.” 

Many states exempt many categories of sales from tax, including items sold for resale and sold to buyers such as nonprofits, schools and governments, among others. Freeing yourself of sales tax obligations on these sales depends on obtaining and maintaining files of valid sales tax exemption certificates. 

“The Constitution protects my company from nexus requirements.” 

The U.S. Constitution sets the basic parameters for determining nexus. The Due Process Clause of the 14th Amendment mandates a link or minimal connection between a state and the entity it wants to tax; the Commerce Clause authorizes Congress to regulate commerce among the states and prohibits states from enacting laws that might unduly burden or inhibit the free flow of commerce between the states. The High Court decided, in this impactful case, in favor of the free flow. 

“My company, not me, bears the ultimate financial responsibility of non-compliance.” 

Personal liability for sales tax can extend to owners, directors, shareholders, officers and even employees. Responsible parties can also just be the person whose duties involve managing and paying taxes or any other person who has the authority or ability to control business payments and decisions. This liability also extends beyond the business to all responsible persons’ personal assets, which could be claimed to satisfy a tax liability.   

“I sell through Amazon, as well as my own site and others. They handle all my sales tax worries.” 

This new term in this industry means a business or organization that contracts with third parties to sell goods and services on its platform. (Your company could be a third party.) Marketplace facilitators enable these sales by listing the products, taking the payments, collecting receipts and shipment. In most cases, but not all, they now also collect and remit sales tax for you. It all depends on when, where and how much you sell on given facilitator. 

Need Help Navigating These Sales Tax Changes?

Contact us to learn about the latest developments in sales tax and what they mean to you and your company.