Economic Nexus effect on remote sales

August 23, 2019

On June 21, 2018, the Supreme Court of the United States ruled in favor of the state in South Dakota v. Wayfair, Inc. case. The decision allows states to tax remote sales and changes how companies must view sales tax nexus and when they have a sales tax exposure.

It is extremely difficult to summarize the determination of taxable or non-taxable for all remote sales of products/services listed by US states on a general basis. The most important matter is rather to determine what activities or thresholds trigger a nexus obligation, where you’ve established nexus, and how it can impact your business.

Numerous U.S. states are trying to force any company with a “presence” in the state to collect, report and remit tax for all sales, however, U.S. states can only require remote sellers to charge sales tax if that remote seller has “sales tax nexus” in that state. Nexus implies that your business has noteworthy “presence” in that state. Here are some of the factors that can build up nexus in a state:

A physical presence – Such as a home office, stockroom, store

Affiliates – Someone who sends clients to your online store for a share of the benefits from a deal

Workforce – Employees, sales reps, and even a few contractual workers can set up nexus

Outsourcing – A circumstance where you have an association with a provider to ship stock to your clients

Stock – If you store merchandise available to be purchased in a state, sales tax nexus is normally triggered. In case you’re a seller who utilizes third-party fulfillment services like Amazon FBA, you’ll generally have sales tax nexus in states where your products are stored for sale.

But the most important factor for remote sellers of digital goods (software downloads, digital products such as e-books and games, and SaaS services) is Economic Nexus. While a particular meaning of “economic nexus” does not exist, the consensus is that a remote seller has economic nexus with the appropriate taxing authority only if it surpasses a specific threshold of sales in the U.S. state. Economic Nexus thresholds of each U.S. state can be found at our THRESHOLDS MAP.

However, even if You have “economic nexus” in a state while selling digital goods remotely, in order for You to collect sales tax on such sale, the particular digital goods should be taxable in that state.

U.S. states which does not tax electronically delivered products or services (digital goods) as of 21st of August, 2019 are:

Alaska

Minnesota

Arkansas

Mississippi

California

Missouri

Colorado

Montana

Delaware

Nebraska

Florida

Nevada

Georgia

New Hampshire

Idaho

New Jersey

Illinois

North Carolina

Indiana

North Dakota

Kansas

Oregon

Kentucky

Vermont

Louisiana

Virginia

Maine

Wyoming

Maryland

Oklahoma

In the event that your business meets any of the criteria for nexus in a U.S. state and your product is taxable in that state, it will be necessary for you to register for a state sales tax permit and collect sales tax from all buyers in that state. Note that you should never collect sales tax from U.S. purchasers without a state sales tax permit as doing so is viewed as unlawful and can lead to criminal charges.

U.S. states sales tax rates are listed below:

State

State Tax

Rate

Alabama

4.00%

Alaska

0.00%

Arizona

5.60%

Arkansas

6.50%

California

7.25%

Colorado

2.90%

Connecticut

6.35%

Delaware

Florida

6.00%

Georgia

4.00%

Hawaii

4.00%

Idaho

6.00%

Illinois

6.25%

Indiana

7.00%

Iowa

6.00%

Kansas

6.50%

Kentucky

6.00%

Louisiana

4.45%

Maine

5.50%

Maryland

6.00%

Massachusetts

6.25%

Michigan

6.00%

Minnesota

6.88%

Mississippi

7.00%

Missouri

4.23%

Montana

Nebraska

5.50%

Nevada

6.85%

New Hampshire

New Jersey

6.63%

New Mexico

5.13%

New York

4.00%

North Carolina

4.75%

North Dakota

5.00%

Ohio

5.75%

Oklahoma

4.50%

Oregon

Pennsylvania

6.00%

Rhode Island

7.00%

South Carolina

6.00%

South Dakota

4.50%

Tennessee

7.00%

Texas

6.25%

Utah

5.95%

Vermont

6.00%

Virginia

5.30%

Washington

6.50%

West Virginia

6.00%

Wisconsin

5.00%

Wyoming

4.00%

District of Columbia

6.00%

In the event that you have a sales tax obligation triggered but have not been remitting sales tax to the state, you run the risk of being audited and it will only be a matter of time before you’ll be required to pay what you owe or even charged with a criminal offense.

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