A Small Guide to Understanding
eCommerce Sales Nexus
When it comes to taxation, there are many things to consider. One crucial thing to understand for online businesses is the e-commerce sales nexus. What is it? And what does it mean for your business? How hard is it to negotiate with the IRS? This article will provide a small guide to understanding e-commerce sales nexus and how it affects your business. Read on for more information.
What Is eCommerce Sales Nexus
eCommerce sales nexus is the legal term used to describe the connection between a business and a state that allows the state to collect eCommerce sales tax from the company. A business has an eCommerce sales nexus if it has either a physical or economic presence in the state. A physical presence includes having a physical location, such as a retail store, office, or warehouse, in the state.
An economic presence includes:
- Having employees or contractors in the state
- Owning property in the state
- Regularly delivering goods or services
If a business has an eCommerce sales nexus in a state, it must collect and remit sales tax to the state on all taxable transactions within the state.
Types of eCommerce Sales Nexus States
There are three types of states for eCommerce sales nexus: marketplace facilitator states, remote seller states, and traditional brick-and-mortar store presence states.
Marketplace Facilitator States
In these states, if an out-of-state seller uses a marketplace platform to sell goods or services to in-state customers, the marketplace platform is responsible for collecting and remitting sales tax on behalf of the seller. Examples of marketplace facilitator states include Arizona, Colorado, Louisiana, Oklahoma, and Washington.
The remote Seller States
In these states, an out-of-state seller is only required to collect and remit sales tax if the seller meets a certain threshold, such as having a certain amount of sales or transactions. Examples of remote seller states include Alabama, Arkansas, Georgia, Idaho, and Iowa.
Traditional Store Presence States
In these states, an out-of-state seller is only required to collect and remit sales tax if the seller has a physical presence. Examples of traditional store presence states include California, Florida, Illinois, New York, and Texas.
Determining If You Have eCommerce Sales Nexus in A State
If you are unsure about whether your business has eCommerce sales tax in a particular state, you can use the following resources to help you decide:
The Streamlined Sales Tax Governing Board’s Member State Directory – This directory provides information on whether a state is a member of the Streamlined Sales Tax Governing Board and what type of eCommerce sales nexus laws are in place in that state.
The Multistate Tax Commission’s Uniform Sales and Use Tax Certificate – Businesses can use this certificate to request exemption from sales tax in states that have adopted the Streamlined Sales and Use Tax Agreement.
The Federation of Tax Administrators’ Online Nexus Questionnaire – Businesses can use this questionnaire to self-assess their level of physical presence in a state and determine if they have nexus there.
How To Establish or Sever Ties with A State To Avoid Sales Tax Liability
You can do this by withdrawing your employees or contractors from the state, ceasing all deliveries of goods or services into the state, or closing your physical locations in the state. If you have established nexus in a form and want to avoid sales tax liability, you need to take one of these steps to sever your ties with the state.
Are There Any Other Ways for Sellers to Reduce Their eCommerce Sales Tax Liability Burden?
Yes! In addition to the aforementioned methods, merchants can follow a few best practices to minimize their chances of triggering a sales nexus. These include:
- Only shipping orders into states where you have established nexus
- Keeping good records of your sales, returns, and refunds
- Filing your tax returns on time
- Paying your taxes on time
Final Thoughts
By following these best practices, you can reduce your chances of triggering a sales nexus and incurring sales tax liability. Understanding nexus is vital for any business that sells online, so we encourage you to do your research and make sure you comply with the laws in each state.
