Have you ever heard of Economic Nexus or Nexus Sales Tax? Nexus Sales Tax is the requirement for businesses to collect sales tax in states they are selling to. If you are an online business based out of Phoenix, keep reading.
A couple of years ago, the state of South Dakota took a stand against Wayfair, Inc. in the U.S. Supreme Court. South Dakota came out with the win, and thus, “economic nexus” was deemed enforceable by states, counties, and municipalities. Some businesses may unknowingly be affected by this court case. We’re here to break down economic nexus and what you need to know as a business owner.
Prior to this significant case, a company was only required to collect sales tax if the company had a physical presence in the state. Physical presence means they had property, inventory, or employees residing within state lines. As online sales began to boom, major companies, like Amazon, have been able to forgo collecting sales tax in many states. This caused many states’ sales tax revenues to suffer. Phoenix businesses that have online sales need to be aware of this.
Economic Nexus requires businesses to register and collect sales tax in a state if sales in the given state are above a certain dollar amount. you are also required to collect sales tax if a minimum number of sales transactions occur within the state. Physical presence is no longer the only factor in determining sales tax liability.
Nexus sales tax thresholds and regulations vary by taxing jurisdictions. It is important for businesses to be aware of all implications of doing business across state lines. This could affect your business if any of the following apply to you:
Here are some quick tips to making sure you are tracking economic nexus exposure and staying compliant:
If you would like assistance sorting out your Nexus Sales Tax to ensure you are in compliance, please contact us. We are happy to help in any way we can to keep your business moving!