What You Need to Know About Sales Tax Nexus

It has now been well over two years since the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. handed states the ability to require out-of-state companies to collect and remit sales tax. The past two years has seen a wave of new sales tax legislation by states putting into place their own standards of economic nexus.

Prior to these enactments, a business without physical presence in a state was not required to collect sales tax within that state. Now, businesses must monitor not only the amount of sales into each state, but also the number of transactions each year. The evaluation period and thresholds vary from state to state. States even differ in which sales to include in the determination of nexus; some states include all sales, while others do not include sales for resale and/or exempt sales.

To protect your business from potential sales tax assessments, you should be aware of activity that may cause sales tax nexus. Many states are sending questionnaires to companies, but completing a questionnaire without a complete understanding of sales tax nexus could open up your business to further scrutiny by the state.

Here are some things to keep in mind with respect to sales tax nexus:

  • Even if your business only has exempt sales in a state, you may still have a filing requirement in that state.
  • No matter your size, if you sell through Fulfillment by Amazon, your inventory may be stored in many states, giving your business nexus for sales tax collection.
  • Resale certificates may need to be updated regularly. Some states require new resale certificates every few years. It is the seller’s responsibility to hold valid resale certificates if not charging sales tax.
  • If you do receive a nexus questionnaire from a state, work with a trusted tax advisor to respond.

If you are unsure what your nexus risks are, you should act sooner rather than later. Sales tax examinations often cover several years at a time. Cray Kaiser can help you analyze where you have exposure and advise what to do about it. Contact us today, we’re here to help.

Please note that this blog is based on tax laws effective in December 2020, and may not contain later amendments. Please contact Cray Kaiser for most recent information.