All About Nexus

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If you are doing business in multiple states, you may be liable for collecting sales and use taxes, for sales in certain states. Even online businesses are affected; you do not have to have a permanent retail store or service located in a state, to be subject of the law. For example, Amazon now collects sales taxes in just over half of the states in the U.S. The determining factor in whether or not your businesses are liable for collecting sales taxes is Nexus.

So what is Nexus? There are several criteria companies must meet in order to be required to collect and pay sales taxes in a particular state. Nexus is simply the rule of law that sets the requirements businesses to have to meet, to be responsible. Here are some of the considerations to help you determine if your business is required to collect and pay sales taxes in various jurisdictions. Unfortunately, it is not the same across all states. It is essential in business today to engage a professional accountant that understands your tax liability fully depending on where you sell your products and services and the local sales tax and use tax laws for each area.

Physical Presence

Most often, Nexus can be determined quickly if your business meets the physical presence requirements of the state. If your company operates a retail outlet, warehouse or office and/or has employees in the state, chances are your business is responsible for calculating, collecting, filing and paying state sales and use taxes. The sufficient physical presence litmus test in some states can be as little as a few days, or as high as a month, meaning that a tradeshow or special event may require sales tax collection and payment, depending upon the jurisdiction.

Virtual Employees

Yes, even your virtual employees and independent contractors in some states may be enough to make you liable for sales tax collection and payment. Before hiring an employee or bringing on a contractor, it is imperative that you check with your company’s accountant to determine how it will affect your liability in these areas. It is far better to be prepared than to scramble from a position of weakness.

Affiliates

If your online business markets and sells products and/or services through affiliates, some states have legislated that companies are required to collect and pay sales taxes.

Prepayment

Some states now require that companies pre-pay sales taxes. This is often a challenge for small businesses and startups, and should be considered a necessary part of the budget. Each state has its own requirements and filing deadlines resulting in your business having to juggle multiple filings. Some states may even require filings and payments, two times per month. When doing business in multiple states, it is easy to lose the ability to manage all of the deadlines and requirements.

There is nothing simple or clear cut when doing business in multiple states. For years, online retailers skated through without worrying about collecting sales taxes. However, as legislatures started looking for more ways to raise revenues within their borders, they turned to the businesses that were selling to their constituents to collect sales taxes. This has resulted in sheer mayhem for many small firms and entrepreneurs. For more information about how these rules affect your business, contact Barry Bandler Accounting and Tax Services.

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