It used to be easy. If you had a physical presence in a state, then you had a sales tax collection obligation (including collecting reseller certificates on exempt sales). If you didn’t have a physical presence, you could sell products and services in other states without worrying about sales tax. You may have even realized a competitive advantage over local businesses who had to add on the extra 7-8%, or even 10%+ in some jurisdictions in California.
But today your sales tax obligations are not that simple!
In the sales tax world, the term nexus refers to the link or connection a company has with a state. If nexus exists based on the state’s definition, then a business must register with the state and collect and remit tax. But not all nexus laws are created equal.
Consider these examples:
Click-through nexus – States including Texas, New York, and California require you to collect and remit tax if you generate a certain amount of revenue through online referrals.
Drop Shipments – If a remote seller uses a drop shipper with nexus in Florida, sales made into Florida may be subject to sales tax. If a drop shipper in Florida is delivering goods on a remote seller’s behalf, that drop shipper is required to collect sales tax.
Affiliate nexus – In California, affiliate nexus can be applied to any entity that’s related to your company in any way. Any sort of ownership, activities conducted on your behalf, or distantly related operations can potentially create nexus.
See a pattern? States who are still trying to recover from recession are expanding the definitions of nexus as a means to increase revenue without raising taxes.
Don’t mess with nexus. If you are selling products and services, you are required to collect and remit sales taxes based on the nexus laws of the jurisdiction within which you sell. And not getting it right can expose your business to an expensive negative audit.
BCA would like to help. We’ve partnered with the sales tax experts at Avalara to bring you a tool to help you understand your nexus concerns. Take a few minutes and answer 10 Simple Questions to Help You Understand Nexus.
Please contact us to learn more about how we can help you understand your sales and use tax obligations and mitigate your audit risk.