Size Doesn’t Matter: Economic Nexus Impacts Small & Large Sellers
Last year, nexus experienced a metamorphosis. Suddenly, this low-profile sales tax issue catapulted into the spotlight. Now regardless of the size of your business, sales tax obligations cannot be ignored for fear of facing significant financial risks.
The nexus bombshell exploded in June 2018 with the Wayfair ruling by the U.S. Supreme Court. Now, even without physical presence, many remote sellers are establishing nexus simply based on the number of transactions or total sales made in a state. And these thresholds are surprisingly low. Most states have adopted thresholds of $100,000 in sales or 200 transactions in the previous year.
Today, more than 70% of U.S. states are enforcing economic nexus requirements. That’s an impressive percentage considering that the Supreme Court ruled less than a year ago that states have the constitutional right to require out-of-state sellers to collect and remit sales tax to states based on economic criteria.
Taxpayers of all sizes are faced with monitoring sales, registering with states, and collecting and remitting sales tax to multiple jurisdictions. Ignoring these obligations could put your company at risk of financial penalties, escalating interest and audit nightmares.
Find out now which states enforce nexus requirements with Cherry Bekaert’s complimentary Nexus Charts. Physical presence in a state continues to create nexus regardless of economic thresholds. Beware, the definition of physical presence is very broad, and it varies by state. Remote employees, salesperson visits, deliveries and even third parties working on your company’s behalf are just a few examples of physical presence nexus-creating activities in many states.
Companies Most Impacted
Four types of businesses are particularly impacted by today’s sales tax nexus obligations:
1) Multi-State and eCommerce Sellers
Any person or business engaged in selling taxable products or services into multiple states must comply with the nexus laws. These sales tax obligations impact all remote sellers from multi-state corporations to mom-and-pop eCommerce stores. Thresholds are set to protect small businesses but sales and transactions add up quickly. The challenge is finding the time to monitor activities in multiple states and navigate the registration guidelines.
2) Industrial/Manufacturing Businesses
Manufacturers and other industrial sector businesses are impacted on both the sales and purchasing sides of business. The burden of collecting sales tax from customers will grow and managing customer exemption certificates in a multi-state environment is critical. Understanding sales tax laws in your state AND knowing how these laws apply to your purchases is critical. Why? More vendors are qualifying for nexus and charging sales tax on invoices to avoid penalties by states. Manufacturers risk overpaying sales tax if state tax laws are misunderstood and vendor invoices are not scrutinized for errors.
3) Technology and Software Companies
Businesses involved with the sale of electronically downloaded software, SaaS, digital goods or information/data processing services must now understand the taxability of these products and services in more states. The challenge of sourcing the transactions to the proper tax jurisdiction is becoming an increased burden as well.
4) International Sellers
If an international seller meets any of the sales tax nexus criteria and does not collect and remit sales tax to those states, the states have the authority to assess tax, and collect penalties and interest on uncollected tax. An international seller from a country with treaty protections is not protected from sales tax obligations.
Sizing Up Your Tax Obligations
Get a clear picture of your nexus footprint. Cherry Bekaert is ready to implement a proactive plan to navigate you through these new sales tax obligations. Our sales tax experts have the tools and resources to complete any or all of these steps.
For more information, visit the Cherry Bekaert sales and use tax website for informative blogs, charts and webinar recordings.