Businesses like yours that expanded into e-commerce markets and digital sales channels have had to be aware of economic nexus ever since the tax compliance landscape changed with the landmark South Dakota v. Wayfair Supreme Court decision.
Your Finance team’s responsible for collecting and paying sales tax on out-of-state online sales, including to the states you don’t have facilities in.
And except for Delaware, Montana, New Hampshire and Oregon – which do not collect sales tax – every state now has its own set of tax collection/payment requirements.
Even Alaska, which historically doesn’t collect sales tax, has given local municipalities the option to enforce economic nexus, including marketplace sales.
As a result, it makes the most sense to assume your company owes sales tax in every state from the get-go. A/P and A/R will actually have an easier time identifying the few places where you don’t have to collect and pay sales tax.
Also, it’s worth noting that state revenue departments are stepping up tax audits to make sure they’re getting their slice of the pie. Some states are even issuing warnings to businesses about enforcement measures.
It’s far less costly and time-consuming to be in compliance now than it is to be cleaning up tax obligation issues later.
Economic nexus factors to track
Cloud business management software provider Oracle NetSuite came up with this checklist to pass along to your team for staying sales tax compliant:
- Identify which states you’re selling to
- Identify what the economic nexus thresholds are there
- Are sales there direct or through a marketplace facilitator?
- Are there any individual state regulations related to direct and marketplace sales?
- Are there any individual state regulations concerning digital goods and services?
- Stay on top of possible changes to tax policies in the states you do business (Stay tuned – we’ll keep you posted.), and
- Awareness of other nexus triggers like inventory, affiliates, trade show business, etc.
Thirty states tax at least some digital goods and services, but what does and doesn’t qualify as a taxable digital good or service gets particularly complicated. For example, in Connecticut, virtual learning or online training isn’t taxable.
If they haven’t already done so, your Finance team and your marketplace facilitators need to get on the same page on all tax-related nexus issues, including where your product is stored and which entity is responsible for collecting and remitting sales tax.
Since you probably signed an agreement with your marketplace facilitators, whatever terms get agreed upon in these conversations about tax collection should be amended to these contracts just in case a state revenue department contacts you.