Imagine you are among a group of retailer owners who sell millions of dollars worth of goods in your home state each year in sales. Yes, you perhaps make a good living, but your investment in millions of dollars worth of retail space is very costly, and retail is one of the most competitive businesses imaginable.
Then imagine that collectively, you and your fellow retailers pay millions are further hampered by collecting over 7 percent of your sales in sales tax.
Now imagine that your chief competitor is not another retail store, but one online, which collects zero tax on their products? If you were a retail store owner, would you complain too to your state sales tax law officials that the online store had an unfair advantage?
Your darn right you would, and this all connects to a sales tax law term called sales tax nexus.
What is sales tax Nexus?
According to Wikipedia, in Quill vs North Dakota Way back in 1992, earlier than online stores such as Amazon was formed, the U.S. Supreme court held that states could not collect sales tax from an online store unless they had a physical presence within the state, such as a warehouse.
However, sales tax Nexus changed in June of 2018, when the U.S. Supreme Court reversed the physical presence limitation of Quill, and in the Wayfair sales tax case, in which South Dakota successfully petitioned the course for a reversal of the Quill Decision.
Noting that online sales under Quill were around $180 million dollars but by the time of Wayfair sales tax case, online revenues had ballooned 2400 times that amount, to $435 billion dollars, by a 5-4 majority, and with the support of the Trump administration. Quill was overturned.
Since that time, according to the “Balance Small Business.com” all but five states who have no sales tax, have joined a consortium to collect sales tax from online sellers.
It is abundantly clear that soon, almost all of these states will have changed their state tax codes, to require the collection of sales taxes, although as in the case of South Dakota, primarily they are only going after large online sellers.
South Dakota, offers a sales tax deduction for those who sell less than $100,000 worth of products or do fewer than 200 transactions. Other states have stronger or more liberal sales tax deduction limits.
What does the changing sales tax laws mean for your in-house accounting?
As the floodgates open for law changes, in-house accounting departments are overwhelmed. How can an employee in Texas, keep track of the sales tax requirements in 44 other states?
While it’s true you can easily find a sales tax calculator for each state, a given sales tax calculator may or may not be up to date, and certainly will not tell an online selling company about individual state requirements.
That’s the reason, most large online firms now use sales tax outsourcing firms such as Taxconnex to do the calculations and file the sales taxes for a company. Without sales tax outsourcing, online sales taxes can now be a nightmare.
Another consideration is that smaller firms that do their own taxes, often receive tax audit notices, knowing that the smaller the firm, and the more likely they did their own sales tax calculations, the more likely they will not successfully challenge an audit.