By Michele Vetlov
In simpler times, a New York-based industry sold its products or services within its state boundaries. As such, it was their responsibility to gather and remit sales tax to the taxing authority of The Big Apple. However, thanks to the rapid advancements in technology, today’s corporate atmosphere has become much more multifaceted.
As inter-state sales are becoming routine, the same New York-based company has many more consumers to choose from, amplifying their client exploration from their home state to every state across the country. With companies possibly being liable for sales tax in many other locations than their home state, the following will give you an idea of where potential obligations may be.
As companies continue to market and sell across state lines, it can be tricky for them to track sales tax for each state they sell into. Companies aren’t always aware of which specific localities they should collect and remit to. Nexus, the critical “physical connection” between a vendor and the state, establishes when there should be sales tax collection. There’s a greater chance the business needs to collect sales tax on revenue generated in a particular state if there is a physical presence there. This can be a work-at-home employee, inventory, or even deliveries into a state with company-owned vehicles.
Nevertheless, if the business fails to collect sales tax on a qualifying transaction, it is the company that may be held liable for that payment upon audit. This detail evidences the importance of acquiring all knowledge necessary on nexus and its specifics.
States are starting to transform and modify the “physical connection” needed to impose sales tax obligations on out-of-state sellers. They are implementing an economic standard that goes beyond any physical presence.
South Dakota enacted a law this year that requires sales tax collection when an out-of-state seller’s gross revenue from the sales of tangible personal property, electronically transferred products, or services delivered into South Dakota exceeds $100,000 OR if that seller has 200 or more separate transactions (regardless of the dollar amount) from those sales into South Dakota. Depending on your activities, you could easily exceed this amount without even knowing it and have a sales tax obligation to South Dakota. This follows Alabama’s enactment of a law that establishes sales tax nexus when an out-of-state seller of tangible personal property has sales into the state that exceed $250,000.
To keep up with these constant changes, be sure to track your sales activities by state. Additionally, ask your tax advisor to alert you on any changes recently enacted. This can include any repeals of the existing law and expansions to the nexus thresholds to other states. Being informed and on top of these modifications will ensure success for your business in the long run.
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As a Manager specializing in tax at Wiss & Company, Michele Vetlov works with business owners to ensure they are compliant with state and local tax law and eligible for a variety of incentives. Reach Michele at firstname.lastname@example.org or 973.994.9400.