‘It depends’ is a commonly used phrase when it comes to sales tax, and a quite frustrating one at that. We know that. But when it comes to taxability, it’s often our answer.
Understanding the taxability of your company’s products or services is one of the key steps to complying with sales and use tax laws nationwide. But that can be a challenge. Keeping up with states’ sales tax rules was the most-cited worry for 2021 among respondents to our recent survey regarding sales tax and business growth in 2021 – followed closely by understanding taxability of products and services. Which is not all that shocking when you think of all the nuances to understanding your businesses taxability.
Not only do states vary widely in their nexus thresholds, but taxability also differs across state lines. If you sell items considered tangible personal property (e.g., physical items), things are a bit easier, as they’re likely taxable for sales and use tax purposes. Similarly, services are generally exempt unless stated otherwise.
Other products and solutions can be more complicated. Many states’ rules don’t address how some digital products are taxed, for instance. Software as a service (SaaS) is subject to a myriad of rapidly changing tax rules. Telecommunications companies are in a realm of their own and must consider many taxes and fees that other industries do not. Construction, manufacturing, leasing businesses, it all depends.
Understanding your own states rules is usually simple, but as your business grows, so does your sales tax obligation. To ensure you stay compliant, you need to watch both the nexus and taxability rules in each state so you understand where you have a sales tax responsibility. There are times where you establish nexus but your product and/or service is not taxable in one state but is in others. This is a lot for any business to keep up with.
TaxConnex is an outsourced sales tax department for businesses looking to solve the sales tax puzzle. By relying on years of expertise and having dedicated practitioners to provide support and answer questions, TaxConnex can help your business stay on top of your taxability and ensure your are maintaining compliance in the states where you have an obligation. Get in touch to learn how we can help you!
To learn more on this topic – check out our new eBook on Taxability – this blog is a smaller excerpt of this piece and will go into more detail for individual industries.