It’s been more than a year since the U.S. Supreme Court rendered its decision in South Dakota v. Wayfair, removing the physical presence required for state sales tax nexus.
Since then, most states have adopted the concept of an “economic presence” for nexus. For many manufacturers selling out of state, this ruling has prompted a deep dive into the question of nexus in each state where they ship or deliver. Others, however, have taken a more reactive approach, waiting to address the situation until a state notifies them of a tax liability.
It’s no surprise that tax professionals advise against this “wait and see” attitude for several reasons. Foremost, if your company does nothing, you may be at risk for potential exposure. Unless you face the state and local tax (SALT) situation, you don’t have the opportunity to plan for your tax liabilities. In addition to the tax you owe, you may rack up interest and penalties, which can be significant.
Based on your sales footprint, your company should be registered in all the states where it is required to do so, based on sales volume, transaction thresholds, or both. Your company will likely be required to either charge sales tax in those states or get resale certificates in those locations. This can be a complex process.
You’ll also need to determine precisely what is taxed, such as shipping and handling. Every state is different, and some have unusual taxes like an excise or commercial activity tax on specific products.
In addition, your staff needs to be able to answer customer questions about which taxes and rates they will be charged.
If your company is exempt from sales tax in a state, be sure to collect and track all exemption certificates. If not, consult with your tax advisor to get input on your SALT situation.