Earlier in 2018 the U.S. Supreme Court handed down its anticipated decision in South Dakota v. Wayfair. The case challenged South Dakota’s application of its sales tax to internet retailers who sell into South Dakota but have no property or employees in the state. Well South Dakota persuaded the Supreme Court and now it is open season on states to impose sales tax on sales where the seller has no employees or offices in the state they are selling to. Instead of providing you with answers regarding whether you might be liable to collect sales tax on sales you are making within the United States, instead I am going list questions you will first need to ask yourself.
- What is the sales threshold of the state my customer is in? Many states who do impose the economic nexus standard are willing to let some smaller sellers to be exempt.
- Is my product subject to sales tax? Perhaps New York imposes sales tax on your product, but Colorado does not.
- Is my customer a reseller? If you are not selling to the end user; there is no sales tax.
- Am I selling a service or a product? Generally, services are exempt from sales tax, check if you can unbundle your product and separate the maintenance component from the product.
- Where is my customer? Not only do state sales tax rates vary, but cities within that state may also add percentages to the base sales tax rate.
- Who is buying my product? Is the company whose address appears on the invoice my customer, or are they just processing purchases for business units in other states?
- Will the state I am selling to impose taxes retroactively? Many states are still deciding on rules to apply the Supreme Court ruling.
The above questions must be asked, in order to see if the new economic nexus rules apply to you. Once you ask these questions, we can help you answer them. In short, we are in a new world when it comes to sales tax and the old nexus rules must be carefully reviewed.
The writer is the CEO and President of Philip Stein and Associates