Struggling to understand where you need to collect sales tax?
One common inquiry we receive concerns how a business can register to collect sales tax across all states. Surprisingly, many new business owners believe they are required to collect sales tax in every state. This is generally not the case, however, except for larger businesses.
If your business has a physical presence, or "nexus," in a state, you are required to register and collect sales tax there. In states where you lack a physical nexus, you need to register and collect sales tax only if your activities exceed the small seller thresholds established by those states. Understanding these thresholds can be challenging, as they vary from state to state.
To determine if you have "economic nexus" in a state, and thus a sales tax obligation, consider the following factors:
1. Lookback Period - This varies by state. Some states consider sales from the previous calendar year, while others look at the past 12 months. Certain states require consideration of both the current and previous calendar years, and others, such as New York, looks specifically at the previous four sales tax quarters.
2. Total Sales Amount: Each state sets a sales threshold that triggers tax collection responsibilities, commonly set at $100,000, $250,000, or $500,000.
3. Order Quantity: Additionally, some states set thresholds based on the number of transactions, such as 200 orders. It’s crucial to understand whether these thresholds are cumulative or if meeting just one is sufficient. The specific wording used - whether "and" or "or" - can affect your obligations.
To see the specific levels for each state, visit this page on our website: https://lnkd.in/eCUhTUqC
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