Managing Your Business in an Uncertain Sales Tax Nexus Environment

You may not realize it, but we’re in the middle of a very transformative period for sales tax nexus. To call what’s happening across the states an uncertain nexus environment doesn’t even begin to capture it. All around the U.S., new sales tax nexus bills are being introduced, enacted, and challenged. Each one of these bills could have an effect on where you need to collect and remit sales tax.

A bit overwhelming, isn’t it? Here at the Sales Tax Institute, we think this is such a big deal that we’re monitoring the latest nexus developments on a daily basis. We’ve even assembled a handy Remote Seller Nexus Chart that lists all the states that have enacted different types of remote seller nexus legislation.

But knowing which states have enacted click-through, affiliate, economic or marketplace nexus or use tax notice and reporting requirements legislation is just the first step. The real challenge is determining what your best plan of action is in an uncertain nexus environment.

When I talk about nexus legislation, what I’m referring to is legislation that imposes a specific type of nexus requirement on remote, or out-of-state, sellers making sales into a state. If you need a refresher on these different types of legislation, I’d encourage you to download our free nexus whitepaper. Once you understand the different types of legislation and where they have been enacted, you need to determine if there is an impact on your operations.

If you know that a state is imposing registration and collection requirements that affect your business, what should you do? Do you restructure your business to avoid creating nexus in that state? Or is it a situation where it might not be worth it? Take Amazon.com for example. As one of the biggest online retailers in the world, they have a lot at stake in regards to the changing nexus landscape.

As states began enacting remote seller nexus legislation, Amazon had a challenge on their hands. The fulfillment centers that Amazon uses to fulfill orders were creating nexus for the company in states that had passed affiliate nexus legislation. So what did they do? In some cases, they stopped using fulfillment centers in states that had enacted affiliate nexus laws.

That only worked for so long though. As the tides changed and more states began enacting more types of nexus legislation, we’ve seen Amazon enter into voluntary sales tax collection agreements with many states. Here is just one recent example. It appears that Amazon weighed the pros and cons of collecting sales tax vs. trying to avoid nexus. And they determined that it makes more sense to collect and remit sales tax. This is the type of decision that many retailers will need to make, if they haven’t already.

Colorado is another good example. Recently, a settlement agreement was reached in Colorado’s long-running legal battle over the state’s use tax notice and reporting requirements legislation. As a result of the settlement, the legislation affecting remote sellers becomes effective on July 1, 2017. This is a big deal for affected retailers. One of the most important things to understand about the notice and reporting legislation is that this applies to retailers who don’t collect and remit Colorado sales tax:

1. Non-collecting retailers will need to provide notice that use tax is due on purchases by their customers on each invoice/order document.
2. Non-collecting retailers must provide annual summaries of customer purchases to Colorado purchasers.
3. Non-collecting retailers must file customer information reports with the Colorado Department of Revenue.

That sounds like a lot of work, doesn’t it? To comply with those requirements would mean a lot more than just some minor adjustments. You’d need to put systems in place for ongoing compliance with these requirements. Which begs the question – is it worth it? Would it just be easier to collect and remit sales tax on sales made to Colorado purchasers? This is the type of analysis you may need to conduct to determine your best plan of action. And as in all such matters, consulting an experienced sales tax advisor is recommended.

The Multistate Tax Commission (MTC) had negotiated a special deal for online sellers that may have sales and income tax obligations from previous unpaid taxes in 25 different states. The MTC put together a special amnesty initiative program for online sellers that ran from August 17, 2017 to November 1, 2017. The program is now over. If you didn’t take advantage of the program but realize you need to evaluate your activities, you should consider our Wayfair Risk Analysis consultation.