If you sell products or services across state lines, there’s a good chance you’re dealing with sales tax nexus. Most business owners think accounting and tax services only matter during tax season - but that’s where mistakes start. You might think it only applies to big eCommerce stores. Not so. Even small stores, freelancers, or online resellers can create nexus in states they don't even visit. Let's take apart what makes nexus so problematic - and what you have to keep an eye out for.
1. Nexus Isn't Just About Physical Presence
You don't necessarily need to open a bricks-and-mortar store in order to be responsible for sales tax. Here are things you may inadvertently create nexus by doing:
- Storing inventory somewhere else (like with Amazon FBA)
- Sending workers or contractors to other states
- Going to trade shows
- Selling large amounts of goods to customers in one state
- Placing targeted ads to specific areas
- Remote companies can end up obligated to collect and report in many states.
2. Economic Nexus Thresholds May Be Low
Other states have thresholds of $100,000 in sales or 200 distinct transactions annually. It doesn't take very much to exceed that threshold, particularly if you have an online store or digital goods.
The issue is that each state has its own regulations. You could be meeting the threshold in five states and have no idea. That's where a lot of owners fall down.
3. Digital Products Are Included
Selling downloads, eBooks, or online courses? It's taxed in some states, not in others. It just depends on where your customer is. Most stoners operating online shops believe they're in the clear. But online sales can still cause nexus and impose reporting requirements-even if you never mail a physical product.
4. Not All Marketplaces Take Care of It for You
Just because you sell on Etsy, Shopify, or Amazon doesn't mean you're in the clear. These marketplaces might charge sales tax, but they don't necessarily do your filing or notices.
You will still need to monitor where you have nexus, register where you are required, and report returns timely.
5. Penalties Accumulate Quickly
Nexus problems won't disappear if you ignore them. If you fail to register in a state where you've crossed the threshold, you may owe back taxes, interest, and penalties. If you work with professionals who understand sales tax nexus as part of their accounting and tax services, you can avoid costly surprises.
Worst, states communicate with one another. One audit can lead to another. Staying neat and organized and catching problems early on can spare you a lot of headaches.
What You Can Do About It?
- Keep track of sales by state
- Check thresholds on a regular basis
- Take a look at where you keep inventory
- Get registered in states you've reached thresholds in
- Consult with a tax professional to keep things in line
Maintaining these regulations isn't compliance only, having them keeps your company running smoothly and audited-free!
Worst, states communicate with one another. One audit can lead to another. Staying neat and organized and catching problems early on can spare you a lot of headaches.
Final Thoughts
Sales tax nexus isn’t something you can afford to ignore. As your business grows, so do your responsibilities in other states. Keeping track of it all can be overwhelming, but you don’t have to do it alone. Working with professionals who specialize in accounting and tax services may help you avoid big penalties and keep your business running smoothly. Stay informed, stay compliant, and stay ahead.
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