What is a Tax Nexus?
Sales tax nexus is defined by the US Supreme Court as the “presence and possession of tangible personal property within the state’s borders with the intent to sell the property at retail. It’s understandable that for some people, the more they read about sales tax nexus, the more they get confused about it. It’s a complex concept that, without guidance from a professional, may lead you around the wrong path and cause problems for you and your business. This is true whether you are running a large or small operation.
For obvious reasons, it’s in your interest to have a strong understanding of what it is and why you need to be able to deal with it when you’re running an operation of your own. Even if you operate from outside of the US and sell to customers within it, it’s something you have to have knowledge on to avoid running into future problems. Tax doesn’t have to be an issue for your business if you have put the correct procedures in place to deal with them beforehand.
When you live in a state with a sales tax, for certain purchases, the website will charge you sales tax. They may not do it for certain items, but that is a decision they made in order to cover all of what they are responsible for.
These are the three most important things that you really need to know about tax nexus when you set up a business:
1. An Economic Nexus is the Most Simple Solution in Most Cases
Each state has a different threshold for this, and it usually makes things quite simple to understand. For example, does the company ship $100,000 worth of items a year into Idaho? If it does, a business would need to have a nexus in that state in order to pay what they owe to that particular state.
2. Click-Through Nexus is One That Goes Straight Between the Buyer and Seller
A click-through nexus allows a person to be legally taxed for a physical or business location that they are not even physically present or conducting business with. As many ecommerce sites sell to locations seemingly at random, this is necessary because it’s very difficult to gauge where they are likely to get sales until after they come through. Legally they are covered and are able to pay the correct authority the right amount.
3. Affiliate Nexuses Exist Too
That’s right – you probably forgot about those guys, When a transaction takes place through an affiliate channel (such as when someone has a referral site that links to Amazon via their Amazon Associates programme) tax is collected and paid to the local state. For instance, if the sale took place in Colorado, it means that our tax is paid to the Colorado government, in part, by the small business that make money off of referrals through Amazon.com’s affiliate program. There are similar affiliate programs for all kinds of ecommerce and service sites, all of which have to be mindful of this when they trade.
