26 Jul What You Should Know About Sales Tax Nexus in E-Commerce Accounting
Startups and small businesses come in all shapes and sizes. Many have found their way in the e-commerce world, succeeding in different ways. One of the challenges with e-commerce is the dreaded compliance of understanding Sales Tax Nexus.
Sales tax nexus applies when your company or business has a Nexus, or sufficient physical presence, in a state. It is typically the determining factor of whether an out-of-state business selling products into a state (such as e-commerce) is responsible for collecting sales in the state. Every state has different variations of what constitutes as a substantial physical presence. Common examples of a physical presence are:
- Having an office, employee, and or storefront/warehouse
- Having an affiliate (such as a sales representative, referral company or distributor)
- Storing inventory (such as a distributor, including Amazon if you are using their fulfilled by Amazon service)
- Drop shipping from a 3rd party provider (e-commerce)
- Temporarily conducting business for a limited amount of time (trade show, craft fair, music festivals, etc.)
Having an understanding of these factors is key to understanding if your company has sales tax nexus in states that you are shipping to. For example, if your business is based in Florida (inventory and/or employees) you will more than likely have sales tax nexus in Florida if you are shipping products from a Florida address to a Florida address. However, if you also have an employee in Georgia you could potentially also have sales tax nexus in Georgia (even if you are shipping from a Florida address to a Georgia address). Each state has their own variation of the rules, so you will need to understand them for each state that you are shipping to.
Many online sales platforms help you calculate the correct amount of sales tax to charge, but it’s ultimately up to you to ensure you are charging the correct amount. When engaging in online sales, we typically recommending enlisting the help of your Certified Public Accountant (CPA) in addition to services such as Avalara and Tax Jar.
It can be very complicated and really depends on your specific circumstances. If you have questions on whether or not sales tax nexus applies to your business, book a FREE session to chat with a Sidekick.
We made assumptions and used brevity, simplicity and professional judgement in preparing this information. Your specific situation may vary. We recommend contacting a CPA and/or attorney prior to making any important business decisions.