Avoid Common State and Local Tax Compliance Issues – Know Your Nexus
Published on by Ryan Lauer in Consulting, State Local Tax, Tax Services
Sales growth is exciting. And expanding into new markets can be great for your bottom line, but it can also cause sales tax compliance issues. E-commerce has exploded over the past 18 months in the wake of the global pandemic – which means many more companies are selling in many more states. But e-commerce isn’t the only factor that determines nexus: where your inventory is located and even your remote workforce can create compliance issues – and with steep penalties for non-compliance, it pays to know your nexus.
The buck stops (and starts) here
The US Supreme Court’s South Dakota vs. Wayfair ruling requires companies to register and file sales tax returns even if they don’t have a physical presence in that state. If sales surpass a specific sales volume ($100,000 in most states), then you’re considered to have nexus in that state and may be required to register and start collecting and remitting sales tax. $100,000 is a relatively low number, and as a result, an astounding number of companies are getting caught up in a tangled web of nexus issues.
Location, location, location
E-commerce expansion and increasingly efficient distribution systems mean more companies than ever before have property in other states. If you have inventory in a warehouse or other assets in a state, that may cause you to have nexus.
Remote working matters too
The pandemic has caused a tremendous surge in remote work – and for many, that’s not changing any time soon (if ever). Believe it or not, that’s another driver of nexus. If your business is located in Kentucky and you have employees working remotely in Ohio, Indiana, or Tennessee, you may have nexus in those states as well.
Merger & acquisition matters
Sales tax compliance issues often crop up in mergers and acquisitions. If you’re acquiring a company, it’s important to have a detailed understanding of how they’ve managed sales tax nexus and whether there are nexus or compliance issues that need to be addressed.
On the other side of the equation, if you’re thinking about selling your company, you’ll be much better positioned if you can show where you have nexus and how you’re managing it – or what your plan is to address newly discovered issues.
States are cracking down
With revenues devastated by the pandemic, states are looking for money. More and more are doubling down to find every available dollar: They’re increasing the number of sales tax and income tax audits significantly, and one of the first categories of focus is companies they know are doing business in the state, but that aren’t registered or filing and remitting sales tax. (PS – they know you’re there). Having the state come knocking is not the optimal way to learn you have nexus – especially as the fines and penalties start adding up.
What to do next on nexus
So many states – so little time. How can you quickly get a handle on where you have nexus, when you first had it, and what steps you should take to minimize interest and penalties?
If you haven’t done a state tax review in the past few years – or if you’ve never done one, there’s no better time than now. Understanding where your exposures might lie and the optimal way to address them can save hundreds of thousands of dollars and help create a firmer foundation for your company’s future.
There’s a saying that the best time to plant a tree is 20 years ago. The second-best time is now. The same is true for sales tax nexus.
Get a handle on your company’s sales tax nexus – talk with one of our state and local tax professionals about a sales tax nexus study. We’re here for a free consultation –as always, we’re here to help.
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