Sales tax compliance can be overwhelming, and it’s even more complicated if you, as the seller, have an economic presence in multiple states because of the number of things to keep track of. This step-by-step sales tax guide is a useful place to start to ensure you stay ahead of your filing requirements. We always try to remind clients that sales tax is a pass-thru fiduciary tax. If you collect it and remit it correctly, there should be no liability to the seller. Where it gets dicey is when the seller doesn’t correctly collect, remit and report in jurisdictions in which it is required to do so.

1.) Discover Which States You Meet The Physical Or Economic Nexus Threshold In

The first step is to determine where your business may be liable to collect sales tax. Before 2018, this was more straightforward. If you had a physical presence in a state, you were responsible to collect and remit sales tax. The 2018 U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc changed the sales tax landscape by allowing South Dakota to enact economic nexus legislation, meaning that sellers who had a certain amount of economic presence in the state (either by reaching a certain number of sales or amount of money from sales) were also liable to become compliant in that state, even without a physical presence. Other states quickly jumped on the bandwagon, and today every state has some level of economic nexus legislation. Economic nexus threshold requirements vary by state, so check out yours here. It’s important to note that the enactment dates for economic nexus measurement also differ from state to state, so there are several moving parts in correctly determining the nexus start date. Sellers now need to consider BOTH their physical presence and economic nexus in a state to determine the correct reporting date.

2.) Determine If Your Products And Services Are Subject To Sales Tax

Now that you know which states you have reached nexus in, it is time to figure out which products and services are subject to sales tax and the state sales tax rates. Heads up — this varies greatly by state, and in some states it can even vary by city or county. In general, the sale of Tangible Personal Property (TPP) is subject to sales tax collection in the United States, but there are plenty of exemptions. And it’s not always clear what TPP is. What about software? Software as a service (SaaS)? Other digital products?
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