In today’s world of global economies, business has no boundaries. Technology is making the world a smaller place, with interstate commerce inevitable for healthy, growing companies. Whether a transaction involves physical goods, services, or electronic bits, issues still arise concerning sales and use taxes. The different tax laws from state to state can seem overwhelming to anyone doing business with a jurisdiction outside of their domiciled location, but understanding some of the basic rules can get you on the right track. The first step on the road to tax compliance is understanding sales tax nexus.
Nexus is the amount and degree of business activity that must be present within a foreign state for a business to be subject to their sales tax laws. The level of activity or connection to create nexus is defined by state statute and/or regulation. A particular activity or group of activities may create nexus in one state, but not in another. A typical example of nexus is physical presence such as a building or salesperson. However, with today’s global economy and internet based sales states have started to utilize and incorporate economic presence as a means to establish nexus. Your business may be subject to sales tax nexus if you:
1. Own real property in the state
2. Lease/rent personal property in the state
3. Maintain, occupy or use warehouse or storage space or other place of business in the state
4. Have any representative, agent or salesperson operating under the authority of the company for the purpose of selling, delivering or taking orders for any tangible personal property or taxable services.
5. Service, repair or install equipment or other tangible personal property
6. Deliver goods into the state using company operated vehicles
7. Perform construction activities in the state
State sales tax nexus is not imposed for the following activities independently:
1. Advertising in newspapers published in or outside the state
2. Sending catalogs into the state from an out-of state location if the subsequent orders are shipped by mail or common carrier
3. Receiving mail or telephone orders outside the state if such orders are shipped by mail or common carrier into the state
4. Making cash or credit sales over-the-counter at an out-of-state location if such orders are shipped by mail or common carrier or when possession of goods is taken by the consumer at the out-of-state location
Sales tax rules are complex and can vary greatly by industry, state, and business practice. To avoid unexpected audit assessments, it is important to determine if your company has nexus in a state and whether you should be charging sales tax. If you sell physical goods or offer services out of state or do business via the Internet, it is also important to know your obligation to collect and remit taxes.
Dru Beguelin is a Partner at A-SALT Group, LLC where he is a member of a growing practice in the state and local tax arena. A-SALT Group is a dynamic company comprised of professional individuals who bring over 38 years of combined state and local tax experience to bear on your tax needs. His company offers a variety of services focused in the area of Sales and Use Tax, Canadian Sales Tax, and Property Tax.