Nexus! You heard that now you need to register your business everywhere. Don’t panic. It may not be true. But you do need to be aware of the concept of nexus. If your goal is to expand your business by working in a different state or territory or you ship goods to or provide services in different states, there are few things you need to know about the Wayfair case and nexus.
Nexus Tip 1: What is the Wayfair case?
States now have the power to require companies to register to collect sales or use tax even if the company has no physical presence in the state. That’s right, you may be required to register to collect use tax from your customers, even if you have no physical presence, i.e. employees, representatives, independent contractors working on your behalf, property, inventory, or equipment in a state. Some states have passed laws that do require companies with no physical presence to register IF certain business activity thresholds are met.
Nexus Tip 2: What Does It Mean If You Have A Physical Presence?
What does Wayfair mean for anyone who has physical presence in a state? Nothing! If you have nexus in a state due to physical presence or because you meet the definition of “doing business in a state,” etc., your duty to register is unchanged. You had a duty to register before the Wayfair case. This is a golden opportunity to explore whether you have physical nexus and a registration requirement. You can come clean on your own terms and move forward if you made a mistake.
Nexus Tip 3: Physical Presence Rule of Thumb.
There is a general rule of thumb as it relates to physical presence that can help you determine if you have it. Generally, your company has physical presence if you have employees- including employees that work at home, agents, salesmen, independent contractors, company trucks, inventory etc. in a state. Refer to the rules regarding nexus in each jurisdiction to determine if you have an obligation to register to do business in the state or local jurisdiction.
Nexus Tip 4: What Are the Business Activity Thresholds?
Business activity thresholds are the level of sales, number of transactions, one or the other, or both that must occur between your company and residents of a state before you trigger a registration requirement if you do not have nexus for another reason. The rules vary from state to state. Most states have passed laws that require remote sellers to register to collect and remit sales, use, or gross receipts tax.
Most small businesses find that they have no duty to register due to safe harbors passed by state legislators. For example, if you are located outside Texas and make sales valued at $100,000 to Texas residents for the proscribed look-back period, you have no duty to register in Texas. The current Texas threshold is $500,000. Refer to rules of each state for more detail.
Nexus Tip 5: What’s Next if You Have to Register?
If your company is required to register, you have a responsibility to understand taxability rules and comply with them. There are also registration deadlines. Rules vary by jurisdiction. There are various resources available to help you understand your compliance requirements.
If you have no current duty to register, keep your eye on jurisdictions in which you may be required to register in the future. Make sure that you analyze the nexus requirement with the frequency proscribed by each state, in the manner dictated by the law, and that any registrations are timely. In addition, keep all of the analysis performed to make the determination of whether registration was required.
Cheer up!…you may have no registration requirement or next year. But do stay vigilant.
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