December 20, 2016
Is Your Business Ready for Online Sales Tax Collection in 2017?
The internet – and the burgeoning digital marketplace it has created – has broadened horizons and opened doors that wouldn’t have been imagined just a generation ago. With just a few clicks of a mouse, you can do business with companies across town or across the globe. This brave new world of e-commerce had originally created difficulties for brick and mortar businesses and for taxing authorities alike.
The problem was this: if people don’t have to pay sales tax during online transactions, are you unfairly and disproportionately prejudicing businesses in the real world? As a corollary to that, how could governments make up the revenue shortfalls created when sales tax revenues suddenly and dramatically decrease due to skyrocketing use of web-only retailers?
The answer to this was the concept of nexus.
What creates a nexus for sales tax purposes?
Essentially, a nexus is a significant point of contact with a jurisdiction such that a seller has an obligation to collect sales taxes on a transaction. Do you run a business that ships products or performs services for people across the country? If so, you will likely owe sales taxes to one or more local or state taxing authorities. Your physical address – the place where your computers are based or your mail is received (if they are one and the same) – is generally a sufficient nexus point to trigger tax collection in a jurisdiction that has sales tax obligations.
Warehouse locations, factories and fulfillment centers are also sufficient nexus to make sales tax collection mandatory. These are sometimes known as “affiliate relationships.”
In addition, you may need to collect sales taxes from customers if you receive a certain amount of revenue in a state due to click-through ads or referrals, even if you have no physical presence in that state. Click-through nexus is recognized in New York, California, Texas and several other states, though the amount of revenue that triggers tax collection, as does whether the presumption of payment is rebuttable or irrefutable.
Because the non-payment of taxes, whether they are to a local, state or federal taxation authority, comes with steep penalties and consequences (including possible tax evasion charges, fines, jail time and high interest payments), you want to make sure your proverbial ducks are in a row. Work with an experienced tax attorney or financial expert to ensure that your tax collection strategy is compliant with current laws and regulations.