In June 2018, the Supreme Court ruled in favor of South Dakota in the South Dakota vs. Wayfair case which changed the game for online retailers. Gone are the days where online shop owners only had to collect sales tax in states they operate in. Now in 2019, online shop owners have to pay close attention to economic sales tax nexus and make sure they are in compliance with all states.
If you’re wondering what in the world sales tax nexus even is, don’t worry – you are not alone! We’re going to give you all the details below including what sales tax nexus is and who it applies to.
Sales Tax Nexus is a term used to explain the connection that your business has with a state. This nexus, or connection, can be a physical connection or an economic connection.
If you are operating an online eCommerce shop, you should consider whether or not you have sales tax nexus not only in the state you live in but really any of the 45 states that have a retail sales tax policy.
There are two different types of sales tax nexus you should consider:
- Physical Connection – You have a physical connection in a state if any of these apply:
- Office or Home location
- Employee location
- Affiliate location
- Warehouse or Distribution Center
- Inventory Storage
- Temporary Shop (craft fair, market, pop up shop, etc)
2. Economic Connection – Unfortunately economic nexus isn’t as clear cut as physical nexus and we can’t provide an A, B, C list showing who will have economic nexus in each state. Each state is allowed to create its own policies for economic nexus which means your connection to each state will vary greatly. Some states have set policies with a sales amount threshold that could be dollars or numbers of transactions while some states have yet to set these policies but are surely working behind the scenes on them. For that reason, it’s best to consult with a firm like ours that can assist with these and keep you compliant on a monthly basis. We work with tax software that ensures you are up to date during each filing, even as new policies are being put into place.
If you suspect that you have a physical or economic connection with a state or multiple states, it’s best to consult with an expert, research the details on that connection and then start working on compliance. In our next post, Ecommerce Sales Tax 201, we provide a step by step guide on how to get started with sales tax compliance.
If you’d like a sales tax analysis done on your business which will provide full details on every state you have nexus in, please contact us and we’ll be happy to provide details on that service.