Did you know people commonly forget at least four things per day? Usually these are small losses, and do not affect our lives greatly. What if our business forgot to pay sales tax? Nationwide sales tax collections are one of the many overlooked aspects of running a successful business. Has your business been accounting for state sales tax for both in-person and online sales? Forty-five states and the District of Columbia currently collect sales taxes.
The US Supreme Court ruled in 2018 on South Dakota v. Wayfair that sales tax can be collected from businesses without a physical presence in a state. This means both brick and mortar and online sellers will need to be conscious of payment deadlines. This article will discuss the basics about sales tax thresholds, when to submit the taxes, and which states require payments.
What is “nexus”?
Nexus is the amount of presence a business has in a certain location. This is the connection between the state and seller to register, collect and remit sales tax within a state. Businesses with a physical or online presence may reach the threshold to establish nexus within their state.
Some of the activities that trigger nexus include a physical presence, affiliate relationships, remote employees, and other economic activity. The obligations vary across states, but it is important to consider any amount of business which may contribute to meeting this threshold.
Tennessee recently lowered its threshold from $500,000 to $100,000 effective October 1, 2020.
When you need to do it?
There are basic steps to collecting, reporting, and paying sales tax which may be complicated based on the number of state nexuses a business meets. The dates for registration vary among states as well as the filing dates. The deadline for filing usually falls on the 20th or 25th day after the reporting period ends. States require monthly, quarterly, or yearly payments. It may benefit your business to enroll in an automatic filing service to help manage payment dates.
Which states are collecting?
Economic nexus is currently enforced in thirty states. You can view a full list of states, thresholds, and includable sales as of April 4, 2019 from the Sales Tax Institute. Some states will require a dollar amount or a number of transactions to implement the tax. The list also contains registration dates based on when the threshold is exceeded. A majority of states have destination-based sales tax, which means the sale is considered to take place where the buyer uses the product.
What happens if I do not pay it?
Filing and remitting these taxes can be incredibly time consuming, and even more so for multiple areas. However, you will be subject to the entirety of the amount due plus interest and penalties if your business misses payments. This will vary according to each state. In some cases, a sales tax permit may be revoked. States utilize this information to determine if a company is still in business, so even if you did not collect any sales tax that period, you must still submit a return.
Nationwide sales tax collections may seem intimidating to high-volume sellers across many states. However, creating a payment plan and understanding the process will greatly benefit your business. It is important to continually keep an eye out for updates or changes to the laws in each state. The consequences for missing a payment could be severe. For more information on how to grow your e-commerce business check out this article or contact us.