If you sell products online or through mail order, you may have come across the term “Sales Tax Nexus.” As a business owner, you may wonder if this is something you need to worry about or if it is something that only affects the “big guys” like Amazon or Wal-Mart. It is important to realize that whether you are big or small, if you do business out of the state in which you are physically located, you may be in Nexus. Being aware of Sales Tax Nexus, knowing how to figure out if it affects you and knowing what to do if it does is the key to avoiding major tax issues in the future.
Nexus, according to Marcum LLP, can be defined as “a seller's minimum level of physical presence within a state that permits a taxing authority to require a seller to register, collect and remit sales and use taxes.”
Sales Tax Nexus in Action
Right now, Sales Tax Nexus is a complicated matter. A company that operates only in one state MAY have to pay state and local sales tax (SALT) to other states—if a significant amount of its profits are earned through sales in that state. For example, as of April 2017, Amazon pays state sales tax in all 45 states that have a state sales tax and in Washington, D.C., even though it does not maintains a physical presence in all of them. While Amazon may not have operated a warehouse or distribution in the state, certain state tax laws require it to pay taxes just as if such a warehouse exists.
How Do You Determine If Nexus Affects Your Business?
Determining if Nexus exists is a complicated matter. If you are a relatively small business and ship every product from your own facility in one state directly to the consumer, you are “probably” okay paying taxes only in your home state. However, it may benefit you to discuss this with your accountant to make sure you are not missing any nuance in the law that could get you in hot water. Small businesses that utilize distribution centers to streamline the selling process are often the ones hit hardest by Sales Tax Nexus laws. Amazon, for instance, allows independent sellers to use its distribution channels. If Amazon is required to collect and pay sales tax within a state, and you are working with Amazon, chances are you will have to deal with Nexus sales tax too. Staying on top of the latest rules is important. Making a point to check up on the state & local tax law changes in the areas you work in is crucial.
What Should You Do if You Have Nexus?
If you do have a Nexus or state-mandated presence, make sure you are filing all forms and paying all sales tax. If you do not, you are likely to wind up in hot water. One important thing to remember: just because you have to pay Nexus tax, you may not have Income Tax Nexus. In general, you will only pay income taxes in a state when there is a physical presence—the distribution center issue does not seem to be as big of a concern. Talk to your accountant and find out the details about your particular situation. If you are not already working with a qualified accountant, now may be the time to do so—these are complex scenarios that have long-term consequences. You do not want to make a mistake that could affect you for years to come.
If you have questions about your Sales Tax Nexus, please contact the tax team at Goldin Peiser & Peiser.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.