SALES AND USE TAXES ECONOMIC NEXUS AND WAYFAIR

PART 2:  IF A TAXPAYER MEETS THE SALES THRESHOLD IN A STATE, WHAT MUST WE DO NOW?

These frequently asked questions build on our prior series of FAQs.

Q:  Once a taxpayer meets the sales threshold of a state, what must be done to be compliant with the state’s tax laws?

A:  You must register for sales and use taxes with the state.  Depending on the state and jurisdiction, you may need to register with the local jurisdiction or parish.  Please note some states may require you to register with the state’s Secretary of State before obtaining a sales tax permit from the state.

Q:  How often will I need to file sales and use tax returns? 

A:  It will depend on each state.  The state will assign you a filing frequency based on certain criteria it has established.  The frequency will be either monthly, quarterly or yearly.

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Frequently Asked Questions On Sales And Use Taxes Economic Nexus And Wayfair

PART 1:  HOW DOES WAYFAIR IMPACT MY BUSINESS AS A REMOTE SELLER

 Q:  How many states have passed economic nexus sales and use tax law?

A:  All states that impose sales and use taxes except for Florida and Missouri have passed economic nexus laws for sales and use tax purposes.  Please note that Alaska, Delaware, Montana, New Hampshire and Oregon do not impose a state sales and use tax.

Q:  Which sales are used to determine economic nexus threshold?

A:  It will depend on the state.  Some states use gross sales, other use retail sales (sale for resale sales are not included) and others use taxable sales (exempt sales are not included).

Q:  When determining nexus threshold, do I review Customer Bill to Location or Customer Ship to Location?

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State and Local Tax Nexus

This article is the first of a three-part series regarding the State and Local Tax consequences of doing business in multiple states.  Part 1 will discuss Nexus, Part 2 will discuss Voluntary Disclosures, and Part 3 will discuss the Audit Process.

What is Nexus?  In order for a state to impose an income, franchise, or gross receipts tax on a taxpayer or require a taxpayer to collect and remit sales and use taxes, the taxpayer must have nexus with the state.  Nexus is some type of connection with the state.   Such connection could be a physical presence in the state, an economic presence in the state (i.e., taking advantage of the market in the state (such as an intangible asset)) or some type of factor presence in the state (certain dollar amount of sales into a state).

Are there different nexus standards for Income, Franchise and Gross Receipts taxes and Sales and Use taxes?  Yes.

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Remote Work Force And State Tax Implications

The Covid-19 pandemic has had an impact on our workforce.  Companies were forced to quickly respond to a work-from-home model for their employees.  Many employees began working from states other than the states in which their assigned offices were located.  As a result, questions are being raised such as whether the company will have nexus for corporate income tax and sales and use tax purposes in the states where it has remote employees, should the company begin withholding on wages earned by the employee based on the location of the remote employee and whether the employee should be filing a nonresident tax return in the state in which she is working remotely.

Nexus for Companies – Corporate Income Taxes and Sales and Use Taxes

Generally, states will assert that an employee working from home or remote location within the state will trigger nexus for the company.  Nexus is used in tax law to describe a situation in which a business has a tax presence in a particular state, therefore, subjects the company to the state tax laws, such as corporate income or franchises taxes, or sales and use taxes tax.

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