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...
Many companies are confused by the concept of sales tax nexus. This nexus represents the connection between your company and the jurisdiction in question. The most straightforward method of establishing business nexus is to have a physical office with employees in a jurisdiction.
Once you’ve established nexus, your company is responsible for collecting and remitting sales tax in that jurisdiction. However, this concept goes far beyond a physical office. This article will explain eight ways you can create nexus and how your company can work toward complete compliance with the law when you work with TaxConnex.
Sales tax nexus is the concept that enables state and local governments to require businesses to collect sales tax on the products and services they sell. One of the first legal judgments governing this concept was ruled on by the U.S. Supreme Court in 1967. This decision found that the state of Illinois had no basis for requiring National Bella vs. Hess, a catalog merchant with no physical presence in the state, to collect and remit sales tax from its customers. The physical presence standard was reinforced by the U.S. Supreme Court once again in 1992 in the North Dakota vs. Quill case.
In the 2008 decision of South Dakota vs. Wayfair, a new form of nexus was confirmed – economic nexus. In this landmark decision, the U.S. Supreme Court ruled that the state of South Dakota could require businesses with no physical presence in the state to collect sales tax. In South Dakota, the threshold for establishing economic nexus is $100,000 in sales or 200 individual transactions. As a result of this decision, South Dakota is estimated to receive $38 to $48 million each year in revenues from out-of-state sellers.
Many other states have adopted similar statutes, meaning that most states can now force out-of-state businesses to collect the applicable sales and use tax. These laws generate millions of dollars each year for each state.
While some of the methods in which businesses establish nexus seem apparent, several ways seem obscure and easy to miss. These methods can trap companies who are unaware of them. Here are eight ways companies can establish sales tax nexus and thus be required to collect sales tax for specific jurisdictions.
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Businesses have new ways to sell today, as marketplaces such as Amazon, TikTok and the business’s...
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