If you are reading this, you are a online retailer dealing with sales tax. Keeping up with sales tax within your state and rest of other states is an impossible task. Information you need to know now about online selling, sales tax, Wayfair and Nexus.
A small business owner has to wear many hats, and you may have to add another one to wear and that is knowing how you will be affected by the new law on sales tax. As if you didn’t already have enough on your plate, 2019 with Wayfair decision from US Supreme Court marks a change in the way states will require businesses to collect sales tax from their customers and report it.
New Sales Tax Impact Report on US Retailer and Canadian Retailer
With the massive growth of the Internet makes it a lot easier to connect to customers all over the world. Amazon has opened doors for small business owners to sell their products and now they even store vendor’s items in the Amazon warehouses throughout the country. Selling online has stipulations regarding sales taxes, particularly in relation to the new sales tax law.
Wayfair Decision
The U.S. Supreme court decided that states may collect sales tax from out-of-state (including foreign individuals or companies) retailers, that operate solely remotely online or physically located in different state, even if the seller does not have a physical presence in the buyer state.
The court decision leaves it to up to each individual state to levy sales tax laws and make decisions about who should pay state sales and use taxes, and collection of sales and use tax. In simple terms, the new supreme court decision only eliminated physical presence as a mandatory requirement in levying sales tax.
Takeaways from the US Supreme Court Case:
- The law does not apply retroactively, and
- Physical presence is not mandatory for sales and use tax collection
- The law provides safe harbor for sellers with limited business activity in South Dakota
Nexus Law
This new law is the Economic Nexus Law. Consumers will see an increase in some tax rates and new taxes on other services that were not taxed in the past. Nexus law is run by the U.S. Constitution. This law makes doing business in other states very tricky with several tax hoops to stay compliant tax wise. Basically “nexus” means having a tie to a state by a certain amount of transactions or sales in that state. Also if you are doing business there like having an office etc.
How your business has to collect sales tax boils down to where you are and where your buyer is located. Also you will need to know if you have established a nexus in states in which you sell your goods in, or warehouse your items.
For example, Kentucky a “destination” state meaning they collect sales tax where the items are going to; however, they do have Nexus law in effect. If you do not live in Kentucky but sell items to customers or house items in Kentucky, then you will have established a nexus there. Meaning you will need to follow your home state’s applicable sales tax rates and charge the sales tax rate in Kentucky if you house items there or sell to a customer there, because they are a nexus state.
What This Means to You
With more states adding the economic Nexus law in light of wayfair decision, online retailers will be forced keep up with and remain compliant by reporting and collecting sales.
Learn why you need a CPA to help you with ever changing sales tax.
Industries like agriculture, manufacturing and industrial type businesses will have some exemptions. Wholesale items apply, raw materials like wood for assembly, processing or refinement will have them. The good news is food, medicine, and medical devices may be exempt also or at least in some states taxed at a lower rate. All other items are subject to sales tax and the nexus sales tax law depending on a state’s current law. Having the right tax guidance comes from an experienced certified public accountant who specializes in these areas.
If you are looking for sound tax advice on any matter relating to taxes, including sales tax, reach out to a professional today. Contact AKIF CPA and schedule an appointment. We help many businesses throughout the United States and Canada.
