How a Great Season of Sales Can Result in a Great Amount of Sales Tax Responsibility

Products and companies are seeing an increase in sales and monetization via their eCommerce platforms! Small to midsize companies are blowing up, and this is due to a number of factors! Whether your business had a great season and you saw tremendous sales or your product/business went viral on a social media platform, and you have thousands of new sales. Either way, it is important to understand how sales tax can impact you and your business, what happens when you pass a threshold unexpectedly, when you should worry, and how to move forward. 

WHY IS SALES TAX IMPORTANT TO ME?

Selling into one state is great; selling into more than one, let alone all fifty, is even better! However, there are tax implications with this, and it can get complicated. As of June 2018, states can require out-of-state sellers to collect and remit sales tax on sales into their state even if the seller lacks a physical presence. Each state has different rules stating what qualifies as nexus in their state. Nexus is a link or connection that must be present before a state can require you to collect its taxes like sales or vendors' use tax. There are two types of nexus, physical and economic. The type of nexus that concerns a lot of internet sellers is economic nexus. Economic nexus is a financial link with the state. Some states have a monetary threshold only, and some states have both a monetary and/or a transactional threshold. We have a chart that breaks down each state's economic nexus requirements to help you get started.   

I PASSED A THRESHOLD. WHAT HAPPENS NOW?

So you have a really good season of sales, or perhaps you went viral on social media, and you passed a threshold in a few or many different states. What happens now? First, it is important to ensure you have positively crossed the economic nexus threshold in the states in question to determine if there is a need to register. Take a look at nexus, materiality, taxability, and responsibility to file. The second step is to quantify past liability if there is any. Finally, determine the best path moving forward. This could be registering prospectively or registering historically, looking at options such as a Voluntary Disclosure Agreement (VDA), an amnesty, or a managed audit. Many companies seek out professional help during this step. If you need help or direction during this process, reach out or take a look at our blog post.

WHEN SHOULD YOU WORRY, AND HOW TO MOVE FORWARD?

There are unfortunately plenty of mistakes made in the sales tax world. These could include sales tax collected and not remitted, not charging sales tax, and past liability.  Catching these mistakes before they get out of hand can be helpful to reduce potential penalties and interest. Whether you just caught a mistake, or it has been happening for years, this is the time to ask for help and find a sales tax partner you can trust. 

Moving forward after finding a mistake in sales tax can be difficult, but it is important to create a plan and work towards it. First, find reliable help if you need it. Finding help can be challenging, and sales tax can be difficult. Not all partners are reliable, So we have written a guide to helping you find a reliable sales tax partner.

By: Jayci Trujillo

This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.