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Manufacturers -- Put Out the Sales Tax Nexus Fire

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Sales tax nexus has been a hot topic since the Wayfair decision lit a fire under states to enforce economic nexus standards. Manufacturers need to make sure this firestorm of change does not increase their sales tax exposure.
 
Introducing Economic Nexus
Economic nexus is not new, but now states have the authority to enforce economic nexus requirements. In June, the Supreme Court ruled in the South Dakota v. Wayfair, Inc. et al, case allowing states to enforce economic nexus standards. Now an out-of-state seller who has no physical presence in a state may need to collect and remit sales tax if certain sales or transaction activity thresholds are met.
 
For a complete list of economic nexus requirements by state, download this Cherry Bekaert nexus chart.
Cherry Bekaert's  Economic Nexus Chart DOWNLOAD NOWImpact on Manufacturers
What does this mean to manufacturers whose purchases and sales are mostly exempt from sales tax?
1) On the purchasing side, look for more vendors to include sales tax on invoices as they find themselves meeting economic nexus thresholds. The burden is on the manufacturer to make certain vendors have valid exemption certificates.
2) On the sales side, manufacturers need to verify that customers' exemption certificates are on file and up to date.

Physical Nexus
Given all the increasing importance to managing nexus risk, what’s the best way to control this fire? Key employees must be trained to recognize nexus-creating activities. Remember, physical presence nexus standards are still enforced by all states. Did you know that these situations create nexus in many states?
- Salespeople travelling into other states
- Delivery of product into other states with company owned fleet
- Employees working remotely
- Inventory held in other states
- Subcontractors performing services on your behalf
- Trade show attendance
- Data on servers

A comprehensive nexus review is recommended where all your business activities are examined. Only by knowing the full scope of your business activities, can you understand where your obligations lie in different states.
 
Why is This Important?
1) If you have nexus and you are not a registered taxpayer, the state has the authority to go back to the point where you first established nexus and assess you for all the sales tax that should have been collected from your customers.
 
2) If vendors are erroneously collecting sales tax from you for tax-exempt purchases, your company is wasting money that can be used for business development and growth. Be the superhero of your company and stop overpaying sales tax.
 
You can quickly see how fast this potential tax liability can add up. So take time to be proactive. Look for the fire starters.
Do your due diligence and make sure your company has nexus well under control.
 
For more information about managing your sales and use tax risks, subscribe to the Cherry Bekaert sales and use tax newsletter. 
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Lauren Stinson, CMI
Written by Lauren Stinson, CMI

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