Key Concerns About Sales Tax Nexus for Manufacturers
Sales tax nexus has been an issue for manufacturers for a long time. Today it's even more complex with the soon-to-be announced U.S. Supreme Court ruling and new sales tax laws being introduced in states across the country.
The bottom line is if sales are made in a state where your company has nexus, sales tax needs to be collected from those in-state customers, unless the customers provide valid exemption certificates. Otherwise, the tax dollars owed to the state could be coming out of your company's pockets. And that bill can quickly climb into the thousands of dollars!
What's New about Sales Tax Nexus?
It seems almost daily, states are creating new state legislation on nexus-creating activities. The Supreme Court is anxiously awaiting a case to overturn Quill, which is the law that defines "physical presence". And there have been numerous attempts at imposing federal nexus legislation. Bottom line, states are more aggressively seeking out companies - including manufacturers - that are suspected of owing uncollected sales taxes.
Should Manufacturers Be Concerned?
Yes. With tight budgets, DORs are aggressively looking for companies that haven't been, but should be, collecting tax in their states. And when they find them, it can be a big hit. How are companies identified? Through audits of your customers, by your trucks on the road, by information on your website, by other taxes filed in a state, and even by your competitors.
Now is the time to take a look at potential nexus-creating activities. Why risk being forced to take a hit on your P&L and remit sales tax to the state when you should have been collecting it from your customers?
How Manufacturers Can Address Nexus
1) If you suspect your company has nexus and is not registered in a state, evaluate your tax exposure before registering in that state.
2) Determine if a voluntary disclosure agreement (VDA) should be pursued in a state where tax exposure is high. By having third-party sales tax experts, such as Cherry Bekaert (formerly Windward Tax), negotiate a VDA on your behalf, the look-back period and penalties may be reduced, saving your company significant money.
3) Teach key employees, such as sales and marketing, operations, storage and delivery, and human resources, to understand nexus-creating activities. Avoid having unidentified sales tax nexus in the future.
Staying on top of sales tax nexus can save manufacturers thousands of dollars. Address the issue now before a state (or states) knocks on your door and turns an oversight into a financial headache.
Want to learn more about nexus-creating activities that may surprise manufacturers? Download our complimentary checklist: 10 Surprising Activities that Trigger Nexus for Sales Tax.