Your internet and ecommerce sales continue to grow, but what does this mean as far as sales tax? Who should you be collecting it from? and why?
Most retailers that currently sell products online are familiar with the term nexus. According to the SBA (US Small Business Administration) your business needs a physical presence in a state to meet nexus. Unfortunately each state has a different definition for what constitutes a “physical presence”. So how to you determine if you meet nexus?
Use the following definition to make sure you are covered – Nexus is created if your company maintains a temporary to permanent presence of people (employees, service people or independent sale/service agents) or property (inventory, offices, warehouses).
This means that if you are using Fulfillment by Amazon (FBA), Fulfillment by Sears, Shipped by Newegg (SBN) or any other fulfillment house, you will want to make sure to be prepared to collect the appropriate sales or use tax from all the states where these organizations have warehouse facilities. Because if you choose to use these fulfillment options, you may have inventory sitting in a state other than where you are located, causing you to have nexus.
You will want to register to collect and pay sales tax in every state where you may have nexus. Make sure that if you are selling on 3rd party marketplaces such as Amazon, Newegg, Etsy, etc. you have your tax settings set up to have the marketplace charge the taxes you are to collect, not that you have to pay them out of your pocket.
Keep in mind that not every state and locality has a sales tax. Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not currently have a sales tax. In addition, most states have tax exemptions on certain items, such as food or clothing. If you are charging sales tax, you need be familiar with applicable rates.
See – https://www.sba.gov/content/learn-about-your-state-and-local-tax-obligations for links to tax information for each state.