Q: When do I need to register to collect sales tax?
A: A seller is required to collect sales when they have a link or connection to a state, called nexus, and what they sell is taxable. This link or connection can be caused by many activities and may either be physical or economic. Some common physical activities that can create nexus are: are having inventory in a warehouse including an Amazon warehouse, utilizing independent or subcontractors in a state, having employees in a state, having employees or third-parties travel into a state on your behalf, having an affiliate program in the state, and advertising in local media. These are just a few activities that can create a physical nexus. An economic nexus can be created when you cross a certain amount of sales. This level is called a threshold. The most common economic nexus thresholds are $100,000 or 200 transactions, although there are many deviations. Some state have notice and reporting requirement thresholds which are much lower. For example OK, PA & WA all have $10,000 thresholds. You may find charts with thresholds and effective dates for both economic nexus and notice and reporting requirements in our resource section under charts and matrices.
Q: What is nexus?
A: Nexus is the industry term used to mean link or connection. It is the link or connection that must be present before a state can require you to collect its taxes like a sales tax or pay its taxes like an income tax.
Q: Are there states with no sales tax?
A: Yes, there are five states that do not have a state level sales tax. They are New Hampshire, Oregon, Montana, Alaska and Delaware. The Acronym used to remember these five states is NOMAD.
Q: Do I need a registered agent when registering for sales tax?
A: In general, a registered agent is not required if your are just registering for sales tax, even though many states make it look like it’s required. There is a workaround or process in most states where you can register without a registered agent as long as you do not have a brick and mortar location in the state. If you do need this service we do provide registered agent representation and other services.
Q: My understanding is that Michigan's payroll tax return and sales tax return are the same form. How do you recommend preparing this form if your business uses an outside payroll company?
A: We file many sales tax returns in Michigan for companies that use payroll processing services. It has never been an issue for us. Are you having a specific issue or are you just wondering?
Q: Do states care whether sales are taxable or exempt when analyzing economic nexus thresholds? Do they look at total sales or just taxable sales?
A: It depends on the state. Some states say total sales including exempt sales. Other states say only taxable sales. Some states exclude sales for resale but include other exempt sales. Some states exclude marketplace sales while others include them. We have a free chart on our website that details what is included or excluded as well as the economic thresholds, their effective dates, and other useful information. States are continuously updating their information and as they do we update the chart. The chart is called Economic Nexus Thresholds and can be found here: https://www.salestaxandmore.com/state-tax-charts-matrices
Q:We have 30 locations across 16 states. We buy from out-of-state at each branch and then sell within the state. As we open branches in new locations our biggest issue is deciding whether or not we do sales or use tax. Is their a "best reference" can go to a we enter new states to simplify this research?
A: Technically all sales that cross a state line are a use tax. This is because when states first began to impose sales taxes back in the 1930’s it was commonly believed that states could not directly tax interstate commerce. So, a sales tax could only be imposed if the transaction happened 100% inside the state. To prevent out-of-state companies from having an unfair advantage the concept of a use tax was introduced. Use tax is for the storage, use or consumption of a product or service in the state. It is not a tax on the transaction but on the taxpayers of the state, so it’s not a direct tax on interstate commerce. If the seller had nexus, they were required to collect the use tax. If the seller did not have nexus, then the purchaser is responsible for remitting the tax directly to the state. In 1977 the US Supreme Court said that states could tax interstate commerce directly and some states did away with a seller’s use tax and only have a consumer's use tax at this point. I do not know of any resources, but anywhere you have bricks and mortar you generally want to register for the sales tax. If you do not have bricks and mortar, then you would generally sign up for use tax if the state still makes a distinction. Don’t accidentally register for the consumer use tax. However, with the advent of economic nexus, some states, like CO, are requiring remote sellers to register for sales tax, and are even requiring the conversion of existing use tax accounts to sales tax accounts. We may see more of this.
Q: Are credit card processing fees taxable? The intent of the fee the vendor is charging is to cover their merchant fee by taking a credit card for payment of the goods/services.
A: In general states define sales price to include the total amount received without a deduction for the cost of the materials used, labor, services, or any other expenses. The credit card processing fees would be taxable if the item being sold is taxable.
Q: Is freight taxable?
A: There are many factors that go into determining whether freight is taxable or not and you generally need to look at the minutia to get the correct answer. That or use a system like Vertex. In some states freight is always taxable. In other states the freight service must be optional to be exempt. If there is no free option for a local pick-up it becomes mandatory and taxable. In some states it must be separately stated and a direct pass through of costs to not be taxable. Sometimes taxability is determined by where in the sales process the freight charges are incurred. Handling is almost always taxable. Your methods of delivery and how it is invoiced can also have an impact. I believe that the Vertex system has somewhere around 28 different taxability codes for freight. It just goes to show how a seemingly simple concept can become quite complex very quickly when it comes to sales tax.
Q: If you have brick and mortar in a state and use a marketplace facilitator for online sales in the same state, which would be used for the sales tax collected on the online sales? Would the brick and mortar file the sales tax return or would the marketplace facilitator file the return?
A: If a state has a marketplace facilitator collection statute than the marketplace is responsible for collecting and remitting the tax for sales on the marketplace. If a company has sales outside of the marketplace, the company is responsible for collecting and remitting the tax on those sales. When submitting a sales tax return most states require that the marketplace sales are included in the gross sales and then a corresponding credit or an exemption is generally taken so the tax is not paid twice. Each state has their own method.
Q: Generally should it be up to the Indirect Tax Accountant or another department to request exemption certificates from buyers?
A: There is not one perfect answer for all companies. It will be unique to your specific circumstances. Some companies do very well having the sales department collect certificates. This is not my favorite and in general in can lead to issues, but some companies make it work. Other companies have their credit departments handle it, or the accounts receivable department, or the accounting department or the indirect tax department. Some companies outsource it. No matter which internal department your use, training plays a big role. Not only must the certificate be collected but someone needs to review them to make sure they are on the correct form, they are completely filled out, signed dated and make sense.
Q: Could you address registering in states where you may have sufficient sales for economic nexus but have exempt sales?
A: If all your sales are exempt, then make sure you are collecting a valid exemption certificate on all your sales. When it comes to registrations some state do not require a company with 100% exempt sales to register. However other states do require you to register and file zero-dollar returns. The risk is when you are not collecting a completely filled out exemption certificate on the correct form.