A lot of people feel scared and overwhelmed when they hear the word “tax.” But it doesn’t have to be scary. It’s just a matter of understanding the basics and having a strategic plan in place.
Questions to Ask as You Get Started
Here are four questions you need to ask yourself:
- Where does the business have a sales tax collection responsibility? Which states does the business need to be collecting and remitting tax in? This refers to the Sales Tax Nexus.
- How big is the business's liabilities in each of the states where you owe sales tax?
- Are the products that you're selling even taxable in the States? Is this something you even need to be considering?
- How are you going to get registered to get permits and set up your online systems? This could be an eCommerce platform or a home-based platform for delivering digital content so that you're accurately calculating and collecting the taxes.
2 Elements of a Sales Tax Nexus
- Physical presence
If your business has a physical presence in a state, by and large, they're going to have a sales tax collection responsibility. Like Amazon FBA warehouses, if you have inventory, even if it's just transient and temporary in a state, that could create Sales Tax Nexus. Delivery vehicles, employees, or even contractors working within the state can also create a physical presence.
- Economic nexus:
States have been passing economic nexus laws stating that if you cross a certain sales or transaction count threshold, you can have a sales tax collection responsibility in their state. This applies even if you've never been to that state and you know nothing about the state. These thresholds vary on a state by state basis. In general, the economic nexus provisions are generally $100,000 in sales or 200 separate transactions. But there are some nuances to this. Some states look at gross sales, others look at the taxable retail sales. And some want you to exclude or include marketplace sales.
If you want to learn more about the fundamentals of sales tax, check out 007: Navigating Sales Tax On Your Own with Alex Oxford
