If you’ve been following the news, you’ve heard about economic nexus and the future of sales tax. What is an economic nexus, why should your business care, and how can you comply with the new legislation resulting from the South Dakota v. Wayfair, Inc. court ruling? Keep reading to find out.
What Was the Court Case About?
The state of South Dakota petitioned the Supreme Court to overturn the rule that companies must have a physical location in a state before that state can require the company to collect and remit sales tax. The internet allows businesses to sell products online to any customer – even those in states where the store has no brick-and-mortar retail space or headquarters.
The obligation to remit sales tax is “nexus.” Until recently, nexus meant that any company with a “physical presence” (e.g., a building, product, or employees) in a state had to pay sales tax to that state. That ‘physical presence’ nexus law survived for 30 years – until last year’s Supreme Court ruling.
Since last June, over 30 states have adopted their own economic nexus laws. Most states copied and pasted South Dakota’s thresholds of $100,000 or 200 transactions, but some created their own limits. It’s a challenge to keep up!
In many states, the new economic nexus threshold includes both B2B and B2C sales, so B2B businesses must register in the states where they trigger nexus. As additional states adopt new economic nexus rules, expect to see this trend more often.
The Challenge of Calculating Sales Tax
Sales tax makes up 47% of total state revenue and is a statutory requirement. Companies must either be compliant or prove they’re exempt. And now, you’re not exempt even if you have no physical presence in a state – if your products sell there, you must pay sales tax.
Aside from determining the right tax rate, this new law elicits many questions. Where do you have nexus (i.e., in which states must you collect and remit sales tax)? Is your product taxed differently if it ships in a bundle or on tax holidays? Etc. With over 12,000 tax jurisdictions across the country, it’s difficult for businesses with only a few accountants to overcome such challenges.
Manual compliance can cost small to midsized enterprises (SMEs) upwards of 67K and presents risks: what if you get it wrong and get audited?
But you have options.
How Can Businesses Effectively Comply?
Sales tax compliance is hard – all businesses must comply with transaction taxes, including sales-and-use, VAT, excise, communications, and the South Dakota vs. Wayfair, Inc. on Tax Compliance. But Vision33 and partner Avalara can help. Avalara delivers comprehensive, automated, cloud-based solutions designed to be fast, accurate, and easy to use. To learn how Vision33 and Avalara make it easier to comply with new tax laws, watch our recent webinar on the impact of the South Dakota v. Wayfair, Inc. court ruling.