Which Activities Create State Tax Issues?

Multi-State Tax Consulting

 

In this day and age, nearly every company conducts business across state lines. Are you aware of all the additional taxes and fees you may be liable for?

We assist companies with state sales tax and income tax matters. As companies expand their operations and send salespeople across the country, or sell to consumers in other states via the internet, they create into nexus (or taxable presence) and have to think about filing in other states. That’s where Miles Consulting Group comes in.

We help companies answer questions on multi-state tax compliance:

  • Where do you have nexus creating activities?
  • What are the rules? What are next steps?
  • When was nexus created? When should you begin filing?
  • How much retroactive exposure has been created? Can we help you reduce it?

As state tax rules change, we help our clients address these questions by bridging the gap between your business and complex state tax laws.

We are often asked these three questions:

  1.  Why Is A Nexus Review Important?
  2.  Which Activities Cause State Tax Issues?
  3. Multi-State Tax Consulting

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How Is Software As A Service(SaaS) Treated Under State Tax Law?

A very important and often misunderstood area in the sales tax arena is the taxability of cloud-computing, cloud-based services, etc., collectively often referred to as Software-as-a-Service (or SaaS). The moniker alone is enough to start the state tax conversation down an interesting path.

The Basics
When we work with clients to determine how something should be taxed, we start with a few basic questions and then work from there.

Has nexus has been created?
This includes looking at both the physical presence as well as an economic presence. Following the U.S. Supreme Court’s June 2018 ruling in South Dakota v. Wayfair, many states enacted economic nexus statutes which require sellers to collect and remit sales tax in those states based on sales or transactional thresholds. In this process we also look at when nexus was created based on physical presence or economic nexus.

Is the product taxable?
Once nexus is established, the sale of tangible personal property by a retailer to a customer in a given state is generally taxable. We start there, and then review the transaction to see if there are any exemptions that would cause the sale of the property to not be taxable.

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Explaining Nexus Threshold By State

Understanding the intricate web of sales tax nexus thresholds is key for businesses navigating the complexities of state taxation laws. As the digital age continues to reshape traditional business models, the concept of nexus—the connection between a business and a taxing jurisdiction—has become a focal point in determining tax obligations. Nexus can be created by physical presence (i.e.; employees or contractors in a state, an office, or inventory) or economic .

The table below aims to shed light on the diverse nexus thresholds established by individual states across the United States when determining economic nexus for sales tax. Each state presents its own set of criteria that trigger nexus for sales, income, and other tax purposes. By delineating these thresholds, businesses can proactively strategize their operations to ensure compliance and mitigate potential liabilities.

As a business operating in one, or many, of these states, its truly vital that you have clear knowledge of their tax regulations and nexus thresholds.

Things can get a little messy in these matters, so consult the below table, consider your individual fact pattern and then come to Miles Consulting  – we’ll help you understand your unique tax challenges, whatever state you’re in. Our professionals can help with sales tax compliance (filing returns when and where you need to), retroactive remediation, merger and acquisition due diligence, and audit support, among others.

We start most conversations with clients by talking about nexus because that determination is the starting point of a relationship with a state and its taxing authority. Once nexus is established, a company has an obligation to then determine if its products and services sold to customers in that state are subject to sales tax, whether there are relevant exemptions, and then their requirements to file sales tax returns. Nexus is just the first step in the process of becoming compliant.

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Preparing For A Sales Tax Audit: Tips And Best Practices For Middle Market Owners
Navigating a Sales Tax Audit: A Comprehensive Guide to Protecting Your Business

If you’re reading this, you’ve probably received a letter of audit from a government entity. You’ve also likely now gotten over your initial anxiety and are looking for help with the next steps. You’re in the right place – we’re here to tell you that there’s no need to panic.

So, what exactly is a sales tax audit? And what can you expect?

Definition of a Sales Tax Audit

A sales tax audit is a rigorous examination conducted by state taxing authorities to review a business’s sales tax returns, financial records, and transactions. The primary objective is to ensure compliance with applicable tax laws and regulations regarding the collection, reporting, and remittance of sales tax.

We know, sounds scary. But we can help you navigate the process successfully. In this guide, we’ll unpack various aspects of sales tax audits, including triggers for audits, documentation requirements, strategies for responding to audit findings, the role of tax professionals, and the possible consequences of an unsuccessful audit.

Here’s what you can discover:

  1. Understanding Sales Tax Audits
  • Triggers for a Sales Tax Audit
  • Types of Sales Tax Audits
  • Common Misconceptions about Sales Tax Audits

Read More

How Can A Nexus Review Provide Peace Of Mind?

In this day and age, nearly every company conducts business across state lines. Are you aware of all the additional taxes and fees you may be liable for?

We assist companies with state sales tax and income tax matters. As companies expand their operations and send salespeople across the country, or sell to consumers in other states via the internet, they create into nexus (or taxable presence) and have to think about filing in other states. That’s where Miles Consulting Group comes in.

We help companies answer questions on multi-state tax compliance:

  • Where do you have nexus creating activities?
  • What are the rules? What are next steps?
  • When was nexus created? When should you begin filing?
  • How much retroactive exposure has been created? Can we help you reduce it?

    As state tax rules change, we help our clients address these questions by bridging the gap between your business and complex state tax laws.

    We are often asked these three questions:

    1.  Why Is A Nexus Review Important?
    2.  Which Activities Cause State Tax Issues?
    3.  Are We Out of Compliance or Being Audited?

      Why Is A Nexus Review Important?

Navigating A Sales Tax Audit: A Comprehensive Guide To Protecting Your Business

If you’re reading this, you’ve probably received a letter of audit from a government entity. You’ve also likely now gotten over your initial anxiety and are looking for help with the next steps. You’re in the right place – we’re here to tell you that there’s no need to panic.

So, what exactly is a sales tax audit? And what can you expect?

Definition Of A Sales Tax Audit

A sales tax audit is a rigorous examination conducted by state taxing authorities to review a business’s sales tax returns, financial records, and transactions. The primary objective is to ensure compliance with applicable tax laws and regulations regarding the collection, reporting, and remittance of sales tax.

We know, sounds scary. But we can help you navigate the process successfully. In this guide, we’ll unpack various aspects of sales tax audits, including triggers for audits, documentation requirements, strategies for responding to audit findings, the role of tax professionals, and the possible consequences of an unsuccessful audit.

Here’s what you can discover:

  1. Understanding Sales Tax Audits
  • Triggers for a Sales Tax Audit
  • Types of Sales Tax Audits
  • Common Misconceptions about Sales Tax Audits
  1. Responding to Audit Findings
  • The Audit Process: From Notification to Resolution: Gain insights into the audit process, from receiving a notification to resolving discrepancies and finalizing outcomes.
  • How to Handle Audit Findings: Explore strategies for addressing audit findings effectively, including reviewing and collaborating with tax professionals.
    Read More
How Is Software As A Service (SaaS) Treated Under State Tax Laws?

A very important and often misunderstood area in the sales tax arena is the taxability of cloud-computing, cloud-based services, etc., collectively often referred to as Software-as-a-Service (or SaaS). The moniker alone is enough to start the state tax conversation down an interesting path.

The Basics

When we work with clients to determine how something should be taxed, we start with a few basic questions and then work from there.

Has nexus has been created?
This includes looking at both the physical presence as well as an economic presence. Following the U.S. Supreme Court’s June 2018 ruling in South Dakota v. Wayfair, many states enacted economic nexus statutes which require sellers to collect and remit sales tax in those states based on sales or transactional thresholds. In this process we also look at when nexus was created based on physical presence or economic nexus.

Is the product taxable?
Once nexus is established, the sale of tangible personal property by a retailer to a customer in a given state is generally taxable. We start there, and then review the transaction to see if there are any exemptions that would cause the sale of the property to not be taxable.

Read More

Indiana Economic Nexus Threshold Amended

On March 13, 2024, Indiana Governor, Eric Holcomb, signed an emergency law amending Sales and Use Tax provisions in the state. The most notable of these provisions was to amend the economic threshold for sales tax nexus by removing the number of annual sales transactions in the state as one of the two triggers that require retail merchants to collect and remit state sales tax.

Background Of Economic Nexus

In a past blog, we discuss the origins of economic nexus and where we were in 2023 – 5 years after the Wayfair case was decided:

https://milesconsultinggroup.com/blog/2023/06/13/on-the-5th-anniversary-of-the-wayfair-decision-the-impact-of-economic-nexus-on-small-and-mid-sized-businesses/

Have questions about economic nexus in Indiana or another state? Click here to schedule a free consultation:

In most states, the threshold began as either a sales limit or a transaction limit. For example, when South Dakota’s economic nexus law was enacted, it established a threshold of 200 transactions or $100,000, which many states later modeled  as they passed their own economic nexus legislations.

Indiana’s original economic nexus law came into effect on October 1, 2018, and before this law change, the threshold was the lesser of $100K of sales OR 200 transactions.

Transaction Threshold Often An Unnecessary Burden

Read More

Preparing For A Sales And Use Tax Audit: A Comprehensive Guide To Protecting Your Business

Navigating a Sales Tax Audit: A Comprehensive Guide to Protecting Your Business

If you’re reading this, you’ve probably received a letter of audit from a government entity. You’ve also likely now gotten over your initial anxiety and are looking for help with the next steps. You’re in the right place – we’re here to tell you that there’s no need to panic.

So, what exactly is a sales tax audit? And what can you expect?

Definition Of A Sales Tax Audit

A sales tax audit is a rigorous examination conducted by state taxing authorities to review a business’s sales tax returns, financial records, and transactions. The primary objective is to ensure compliance with applicable tax laws and regulations regarding the collection, reporting, and remittance of sales tax.

We know, sounds scary. But we can help you navigate the process successfully. In this guide, we’ll unpack various aspects of sales tax audits, including triggers for audits, documentation requirements, strategies for responding to audit findings, the role of tax professionals, and the possible consequences of an unsuccessful audit.

Here’s what you can discover:

  1. Understanding Sales Tax Audits
  • Triggers for a Sales Tax Audit
  • Types of Sales Tax Audits
  • Common Misconceptions about Sales Tax Audits

Read More

Navigating A Sales Tax Audit: A Comprehensive Guide To Protecting Your Business

If you’re reading this, you’ve probably received a letter of audit from a government entity. You’ve also likely now gotten over your initial anxiety and are looking for help with the next steps. You’re in the right place – we’re here to tell you that there’s no need to panic.

So, what exactly is a sales tax audit? And what can you expect?

Definition Of A Sales Tax Audit

A sales tax audit is a rigorous examination conducted by state taxing authorities to review a business’s sales tax returns, financial records, and transactions. The primary objective is to ensure compliance with applicable tax laws and regulations regarding the collection, reporting, and remittance of sales tax.

We know, sounds scary. But we can help you navigate the process successfully. In this guide, we’ll unpack various aspects of sales tax audits, including triggers for audits, documentation requirements, strategies for responding to audit findings, the role of tax professionals, and the possible consequences of an unsuccessful audit.

Here’s what you can discover:

  1. Understanding Sales Tax Audits
  • Triggers for a Sales Tax Audit
  • Types of Sales Tax Audits
  • Common Misconceptions about Sales Tax Audits
  1. Responding To Audit Findings
  • The Audit Process: From Notification to Resolution: Gain insights into the audit process, from receiving a notification to resolving discrepancies and finalizing outcomes.
  • How to Handle Audit Findings: Explore strategies for addressing audit findings effectively, including reviewing and collaborating with tax professionals.
  1. What Happens If Your Sales Tax Audit Is Unsuccessful?
  • An unsuccessful sales tax audit can result in financial penalties, interest charges, additional tax assessments, legal actions, and reputational damage, all of which can have significant consequences for businesses.

Read More

Which Activities Cause State Tax Nexus Issues?

As states are becoming more aggressive with respect to tax collection, they are also broadening the activities that cause nexus, or taxable presence, for companies. This is important because once a company has nexus, they can be subject to sales tax collection, income tax reporting and other taxes as well.

Some activities that may cause nexus (and therefore state tax reporting issues) include:

  • The hiring of an employee
  • Contracting with an independent contractor
    Maintaining inventory in third party warehouses
  • Owning property or renting office space
  • Exceeding a certain threshold of sales or transactions in a given state (see the Wayfair case discussion)
  • Using fulfillment services like Fulfillment By Amazon (FBA) or similar services which place inventory in third party warehouses in different states

Once a company begins doing business in a state, we assist with procedures for filing necessary sales tax and income tax returns. We also help with apportionment reviews and general compliance.

On the income tax side, one hot topic is properly sourcing revenue for service-based companies. Many states have embraced a concept referred to as “market-based sourcing” for service revenues. That generally means that the revenue will be recognized in the state in which the value of the service was received. What that means can vary by state.

Have a question? Contact Monika Miles Group Consulting.

Calculating And Collecting Sales Tax: Tips And Best Practices For Restaurants

Restaurants often find themselves under the tax audit spotlight – these businesses can be perceived as havens for a significant amount of cash movement. This notion, while not entirely unfounded, warrants closer examination, as it highlights the importance of meticulous financial management in the sector.

This all means that for restaurateurs, the potential consequences of non-compliance are daunting. In fact, in restaurant audits, a discreet tactic is used by auditors. They’ve been known to visit restaurants without prior notice, buying meals with cash to assess compliance and check if cash transactions are properly recorded and reported. These unannounced visits create anxiety and underscore the significant risks restaurants face during audits.

Are you a restaurant owner worried about your tax compliance duties? In this piece, we will explore some best practices, unravel the reasons behind the scrutiny, and equip you with the knowledge and strategies needed to ensure your “ducks are in a row” when it comes to tax compliance.

Here’s what we’ll be addressing:

  1. Understanding the application of Sales Tax to the Restaurant Industry:
    • What is Sales Tax?: Tax on restaurant food, varying by location. Owners must collect and remit it.
      Read More