Sales Tax – Those two words may have just given you anxiety.
Sales tax can be complex depending on the type of business you run and operate. Fortunately we were able to connect with Danny Wright from Peisner Johnson on a recent Small Business Tax Savings Podcast episode to help make this clear for us.
Fill out the form below if you would like an introduction to Danny to tackle your sales tax questions and issues. In the meantime here is some information we feel you need to know.
There are two critical components to determine where you have to collect sales tax: Nexus and the taxability of your products and services.
What Is Sales Tax Nexus?
At Peisner Johnson, they always say, “Start with Nexus”. There are two important types of nexus to be concerned about: Physical Nexus and Economic Nexus.
- Nexus Definition: The qualifying criteria for a seller to be required to collect and pay taxes on sales in a state.
- Physical Nexus: locations, employees, contractors, inventory, etc.
- Physical nexus is when your business has a physical presence in a particular state. Physical nexus enables states to tax the sales of businesses that do business in their state, even if they’re headquartered elsewhere.
- In most cases, physical presence means an office or a retail location. But a warehouse, remote employee, payroll or even a contractor can all trigger physical nexus. You can also develop physical nexus through inventory that’s stocked in a marketplace fulfillment center.
- Economic Nexus: Revenue and transactional thresholds set by the various states.
- In 2018, the Supreme Court decision South Dakota v. Wayfair, Inc. established the concept of economic nexus. This gave states the right to force out-of-state sellers to collect and remit sales and use tax if they meet or exceed a state’s economic threshold. In the last several years, this has dramatically increased the taxability of businesses, making them liable in states where they don’t have a physical presence.
- So far, of the 45 states and DC that impose a sales tax, 43 have passed Economic Nexus laws (FL and MO are the holdouts).
- Every state has its own economic threshold. Some states apply the law retroactively. Some don’t. States can define their thresholds based on retail, gross, taxable or marketplace sales.
Is My Product or Service Subject to Sales Tax?
After you determine your “Nexus Footprint”, it’s important to understand the taxability of your products and services.
- For some, it might be as simple as only selling tangible products that are taxable in every jurisdiction, but for some, it can be quite complex.
- You may sell supplements, food, medical supplies, eyewear, clothing, or a number of other goods which may be taxed at a reduced rate, or not taxed at all.
- Those selling tangible products and services will likely face a much more complex structure.
- We recommend you reach out to a sales tax expert to do a study on your product or service to determine the taxability of it.
When It Comes to Sales Tax, What Process Should I Follow?
Sales tax can be complex for some businesses, if you do not feel comfortable doing research on your own, hire a professional.
Follow These Steps:
- Conduct a Nexus Review
- Identify Your Taxability
- Get Registered and Address Unpaid Liability
- Collect & Remit Sales Tax Wherever You Have Nexus
- Create Your Audit Defense Plan
As mentioned, if you are looking for professional advice and help in this area we work directly with Peisner Johnson (Sales Tax Experts). Email us or submit the form below and we can get an introduction out to you so you can have them take care of steps 1-5 and you can rest easy knowing you are all set!
If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.