Due to the recession, most states are facing major budget deficits and state auditors are looking to sales tax as a way to help generate more revenue. This can be a scary thought for businesses that manage sales tax compliance manually because even the simplest of mistakes can cost thousands of dollars in the event of an audit.
One of the first things to understand when it comes to audit risk is how nexus affects your business. Nexus in general terms means a connection. In the tax world it describes a situation in which a business has a “nexus” or presence in a state that makes them subject to collecting and remitting taxes for sales within that state. Seems pretty straightforward, right? Not exactly.
Most states used to define nexus as an office, warehouse or employee living in that state. Fast forward to the present and it is not as cut and dry. With states trying to generate more revenue, the lines have grayed over the years and states have broadened their definition of nexus. Believe it or not, if you meet one or more of the following scenarios, you could be responsible for nexus in some states:
- – Trade show attendance
- – If a company has an associated business that shares a trademark or a substantially similar name
- – If an affiliate runs “click-through” sites on behalf of Internet retailers and receives compensation for sales made as a result of that activity. (If the affiliate lives in a particular state, then the sales taxes will need to be collected and remitted by the Internet retailer that received the click-through).
- – If repair, installation or maintenance service is performed by your employees or a third party
- – If your company ships a returnable containers into a specific state
- – If a company has representatives regularly visit customers in a particular state
- – If a company is using a company-owned vehicle that crosses state lines to deliver products
As you can see, it is now more important than ever to review the laws in each state where you conduct business to ensure that you are in compliance. Often times, businesses do not even realize that they are out of compliance until they are audited, so the best defense against being audited is automation!
To learn more about the current “Amazon Laws” and about tips to navigate through the aggressive auditors targeting out-of-state retailers, please join Tridea Partners and Avalara on May 2nd at 10 AM PST for the educational webinar, Main Street vs. the Internet – How Online Sales Tax Affects Every Business. Register today!
Tridea Partners has partnered with Avalara, the leading provider of sales tax automation to help businesses from all industries address the complex challenges that businesses face when calculating sales tax rates, managing exemption certificates, filing returns and remitting payments. We look forward to helping you make sales tax management less taxing for your business!