Sales tax nexus represents the level of connection between a taxing jurisdiction and an entity, such as your business. Until this connection is established, the taxing jurisdiction cannot require your entity to collect or remit sales tax. Although the U.S. Constitution and various U.S. Supreme Court decisions stipulate that a substantial physical presence is required to establish sales tax nexus, there is no shared definition of what constitutes physical presence and while certain activities clearly create sales tax nexus, state interpretations are vague and ever-changing.
Once sales tax nexus is established, you must register immediately with the taxing jurisdiction. If sales tax nexus was created in the past, it is important to know that states can assess tax on non-registered entities back to the date sales tax nexus was established, plus penalties and interest. And since sales over the Internet are not protected under the Internet Tax Freedom Act (a common misconception), and the establishment of various “remote seller nexus laws” has increased the likelihood that internet sales could create nexus, the underpayment exposure may be much larger than expected.
The U.S. Supreme Court’s June 21, 2018 decision in the South Dakota v. Wayfair case has led to the proliferation of economic nexus and marketplace nexus legislation across the U.S. With this comes an increased risk of nexus exposure for many companies. If you need an expert analysis of your nexus exposure post-Wayfair, you can sign up for a Wayfair Risk Analysis consultation with Diane Yetter.
The Sales Tax Institute offers a number of free resources to help navigate the post-Wayfair landscape. The Remote Seller Nexus Chart lists the states that have passed one or more types of remote seller nexus legislation, along with the legislation’s effective date and links to other useful information. The Economic Nexus State Guide provides more detailed information on economic nexus legislation that has been passed by the states. Additional remote seller resources for the various states can be found on the Remote Seller Resources page. And for more information regarding sales tax nexus, download the free Sales Tax Nexus after Wayfair – What You Need to Know whitepaper.
There are various ways to address this situation, but the first step is understanding your entity’s sales tax nexus position. Even if you’ve previously reviewed your sales tax nexus footprint, you should update your sales tax nexus position if your entity’s activities have changed.
YETTER can expertly research and report on your business nexus in one state—or nationwide. Recommended actions could include amnesty, voluntary disclosure, prospective registration, activity monitoring or even deregistration. Contact YETTER Tax for more information.
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