The last thing that your business wants to do is to fail to be compliant when it comes to paying sales tax as there are severe ramifications for businesses who willingly avoid paying sales taxes in the states in which they are eligible to pay annual sales tax.
Useful facts about sales tax nexus:
Who controls the determination of a sales tax nexus?
While each individual state is responsible for defining the regulations around what constitutes a nexus in their own state and coming up with their own thresholds, it’s actually the US Constitution that is legally in charge of determining what a sales tax nexus is and isn’t. If you would like to learn more, follow this link.
The first state to use the nexus concept was South Dakota:
The very first state to use the concept of a sales tax nexus in order to increase its revenue was South Dakota. On the 1st of November, 2018 the state of South Dakota declared that any business that made more than $100,000 of sales in South Dakota in a single year, including the previous year or the current calendar year, would be deemed a nexus. As a nexus in South Dakota, businesses would have to submit sales taxes on all revenue collated from South Dakota-based customers.
To add insult to injury, not only did businesses that generated over $100,000 in sales in the state have to pay sales tax in the state but any business which accumulated over 200 transactions in the state were also subjected to paying sales tax. Even companies that only existed online and were based offshore.
How to figure out whether you need to pay sales tax in each state:
You have two primary options unless of course, you’re willing to spend hours researching the complex regulations of each US state. Your first option is to talk to a tax specialist in your city who’ll be able to do all of your research for you. As they’ll be able to go through your business accounts in order to determine how many states you’re a nexus in and how much sales tax you’ll be required to pay to each state. Which will avoid you getting into hot water.
Your second viable option is to use sales tax nexus software in order to quickly gain a list of all of the states in which you’ll be required to register your growing business as a legal tax nexus. No matter which choice that you choose, make sure to register your business as a sales tax nexus as soon as possible, in order to avoid being hit with harsh fines.
As a sales tax nexus you’re also required to provide information on your customers’ transactions:
Not only will you be made to pay sales taxes but you’ll also be legally obligated to provide information on your customers’ transactions when requested by the state. Although you should find out that this practice is relatively rare and may not occur.
So if you find it beneficial to learn as much information about your business’ tax obligations, it’s definitely well worth using all this new knowledge which you’ve accumulated to your benefit.