For years, “tax-free” online shopping brought customers to the web in droves. States lacked the authority to impose a sales tax collection obligation on out-of-state businesses with no physical presence in the state.
But that changed on June 21, 2018, when the Supreme Court of the United States overruled the physical presence rule in its ruling on South Dakota v. Wayfair, Inc. States can now impose sales tax on remote sellers based on economic nexus (the volume or dollar value of sales into a state) as well as physical presence.
In this new sales tax reality, there are three things every small business or startup should do:
1. Reassess nexus: Where are you and your current (and future) customers?
Why it’s time: Now that the Supreme Court has paved the way for South Dakota to impose a sales tax collection obligation on remote sellers with more than $100,000 in sales or at least 200 transactions in the state, other states are following suit. If you plan to start an online business or already sell across state lines, you should watch for new laws.
Already, more than 30 states have economic nexus laws in place or pending. If you sell in volume (as little as $100,000 or 100 transactions) into one or more of those states, you’ll likely need to register, collect, and remit sales tax to the proper taxing authorities even if you lack a physical presence.
Remember that, depending on the state, a sales tax collection obligation can be triggered in many ways. These include but aren’t limited to physical presence in a state, affiliate ties to in-state businesses, and sending employees into a state.
The bottom line: If you’re just starting your business or expanding into new states, it’s a good idea to do some research. Sales tax obligations for businesses aren’t as simple as they used to be. If you’re not sure what exactly nexus means for your specific business, it might be time to consult with a tax advisor.
2. Revisit registration: Do you need to collect and remit sales tax in more states?
Why it’s time: You probably know you need to register for sales tax collection in your home state if you make retail sales. If you make interstate sales, you may also have to register in one or more other states. The first step is to determine where you have sales tax responsibilities. The next is to get a handle on how and when you need to file returns and remit sales tax. These requirements generally differ from state to state.
The bottom line: Having a third party handle registration and returns for you can be more cost-efficient and accurate than handling it in-house. Without a full suite of technology solutions that addresses every stage of sales tax compliance—from real-time rate calculation to on-time returns filing to business license and tax registration services—you may expose your business to risk.
3. Rethink compliance: Is there a better way?
Why it’s time: Managing sales and use tax manually is always challenging, especially for new and growing businesses. And with more than 30 states imposing sales tax collection obligations on remote sellers in the wake of the Wayfair ruling, it can be downright overwhelming.
If your new company is growing or planning to grow, your sales tax obligations will likely grow too. Just like your other business functions, sales tax compliance needs a strategy.
The bottom line: Having a reliable sales tax solution in place today better prepares you to deal with future sales tax obligations. You need a solution that can grow with your business, starting with affordable pricing for low volume companies and ending with a robust enterprise-level platform as you grow into more states.
Sales tax compliance is complicated, and it’s not likely to get easier anytime soon. But that doesn’t mean it has to eat up resources and be a burden on your business. Do your research, and don’t be afraid to reach out to seek expert help for sales tax calculations, state registrations, and returns filing.
Some businesses need an automated sales tax solution to stay above water, while some can be managed in-house; however, all businesses can benefit from consulting with an expert to determine a strategy that works for them.
If you’re looking for more resources to keep your small business legal and running smoothly, check out the latest on law and taxes on Bplans.