Massive opportunities are available to manufacturers and distributors in Ecommerce, but sales tax remains a point of confusion, often preventing firms from moving forward with online commerce investments. Is this the right path?
We put Silvia Aguirre, Vice President of Certificate Management at Avalara, on the hot seat, and she addressed these common sales tax myths head on…
Myth: I don’t have sales tax nexus if I don’t have a physical presence in a state.
FALSE
Precedent was set years ago in Quill v North Dakota that found that you did have to have a physical presence to have nexus. But 5 years ago (Wayfair v South Dakota), found that physical presence was no longer necessary to have nexus. We now have the concept of “economic nexus” found that if you’re doing business in the state – even only online – means you have to pay sales taxes in that state. Every state decided to define what it meant to register in a state. A typical state said, “if you sell $100,000 in my state, you have to register…or if you have more than 200 transactions, you’ll have to register with us.”
Though this varies state-by-state. You can find an up-to-date list of every state and their requirements to determine whether you have “economic nexus” here.
Myth: I’m a B2B company, I don’t need to pay sales tax because I don’t sell to a consumer.
FALSE
The end customer doesn’t matter. Whether you sell taxable items or not doesn’t matter. It’s based on gross sales in the state.
However, if you sell for re-sale and don’t collect sales tax, you need to collect exemption certificates for every state where you’re exempt.
You’re basically becoming an agent for the state – you are collecting sales tax, and then passing it on to the state. And where you’re NOT doing that, you need to show proof of why you’re not collecting it.
Myth: I don’t have to pay sales tax on services.
FALSE-ISH
Every state is a little different, so you need to review state-by-state. Some states say that services count toward that $100k (or 200 transaction) threshold (though not every state).
Myth: I can just give this to my accounting team to handle.
MAYBE
Most ecommerce companies do use specialized software to keep up with all of the changes in every jurisdiction.
Myth: If you have an employee located in a state, you have to pay sales tax.
NOT NECESSARILY
You’ll need to look at those revenue & transaction number thresholds to determine whether you have nexus in that state. Just having an employee there doesn’t necessarily mean you have nexus.
Myth: If I sell through a marketplace, I don’t have to register in those states because the marketplace is handling the taxes.
FALSE
If you’re selling anything into any state – whether you have inventory or not – you have to register with the state if you hit the revenue and/or transaction threshold. You can get a marketplace facilitator certificate to show that the marketplace is paying the sales tax, but you still need to register.
If you’re selling to Amazon and they own the inventory, you would have economic nexus in the state where you sold that inventory to (for example, if the Amazon warehouse is in Kentucky, you have to file with Kentucky).
Myth: If my company is based in one of the 5 states that do not have sales tax, I don’t need to pay sales tax anywhere.
FALSE
You will have to pay sales tax where you have “economic nexus” – any state where you sold to customers and hit the thresholds set by that state.