Dealing with sales tax can be a difficult task, especially for small business owners and eCommerce merchants. The sales tax laws are changing from time to time, and you need to stay up to date with the same.
Sales tax nexus is the relationship between the retailer and the state that requires the retailer to join then collect and pay sales tax in the state.
As an eCommerce business owner, you must have an idea of sales tax and how it is calculated. Sales taxes are paid by consumers and collected by retailers. However, the five states in the United States do not pay any tax to the government.
Depending on the state, some goods and services are exempt from sales tax, and you must have the correct idea about all the taxes that are being charged by the consumers.
Nexus is a business presence in a state, and you must have this to collect sales tax from every state. In more simple terms, a nexus is defined as a bond between a state and a seller. The sales tax nexus can affect your tax liability, and you must understand the importance of it.
On the other hand, each state handles the nexus on its own. Also, there are many business activities that can trigger the nexus status with a state, and this includes:
- Affiliate relationships
- Click-through nexus
- Remote employees
- Physical appearance
- Economic activity
Thus, eCommerce allows companies to sell their products outside of the state, but there are certain rules and regulations that need to be followed accordingly. When you are selling any product or services outside of your state, the initial step should be determining the nexus of your business.
In the year 2018, the Wayfair decision has changed the eCommerce business (regarding sales tax) completely. This decision allowed remote retailers to obtain and pay tax to the government.
If you are a small business owner or an online merchant, you still have to obtain sales tax. Yes, you must have nexus even if you are an online merchant, and it concludes on which products customers need to be charged sales tax.
When the customers do online transactions from your E-commerce stores, the customer is liable to pay the sales tax based on the specific products and services.
Every state has a different sales tax, so you must have an eCommerce business software to deal with every kind of tax. This software is going to make your task more efficient and easy.
If an individual from another state is purchasing goods from your online business, then you need to charge sales tax nexus accordingly and then give it to the respective state.
The basics of the sales tax nexus and how it is connected with the eCommerce stores are already described above. Now, as a business owner, you must take steps ahead of all the tax-related obstacles that can affect your operations.
Now, let’s know the steps to prepare your business for the eCommerce sales tax changes,
i). Make adjustments on the sales channel: Make sure that all the online sales channels are completely functional.
ii). Understand your tax compliance: If your business needs to collect tax sales tax, then register your company with each state you are transacting. Thus, obtain all the documents to do the same.
iii). Determine from which state you are required to collect sales tax: You must know all the basic procedures of collecting sales tax when analyzing a company’s sales tax liability.
Sales tax nexus varies for each state, and you are required to collect sales tax from the consumers and remit it to the appropriate government agencies. Read the above information in detail and if you have any doubts, mention them in the comment section below.