Most of us know that if we open a “brick-and-mortar” shop or office in another state, we will typically be expected to collect and remit sales tax in that state in compliance with that state’s laws. Many of us who follow the news also know that selling online can obligate you to collect in certain states. However, what many don’t realize is that you don’t need to have a physical address or an online presence in another state in order to have nexus.
Nexus refers to a tangible physical presence that creates a connection between a business and a state (and thereby an obligation for the business to collect sales tax). But not all nexus rules are created equal. In fact, in some states, simple activities such as hiring remote employees, use of subcontractors or independent manufacturing reps, or even having your company’s ads appear on a website hosted in that state (aka internet affiliate advertising) can create nexus.
And with most states struggling financially, “out-of-state” businesses that unknowingly create nexus are a great target for auditors looking to cash in on uncollected taxes, fines, and penalties.
Here are 10 nexus tips to help you protect yourself from a negative audit:
- Don’t underestimate nexus – once you’re on the radar, it doesn’t just mean you have to start collected tax now. States can ding you for back taxes, penalties, and interest dating back to when you started doing business there.
- Educate yourself – about changing laws, as well as changes within your organization.
- Don’t assume you’re OK just because you haven’t been contacted by a state.
- Your CPA may not be an expert when it comes to nexus in other states.
- Your employees may not be maintaining your compliance.
- Your competitors aren’t necessarily doing it right, either.
- Don’t wait around for the state to find you.
- Responding to a nexus questionnaire without understanding your exposure and your options can be risky.
- Don’t rush out and register if you discover you have nexus.
- Keep calm and carry on.
For further explanation of these tips and to learn more about your potential exposure, download our free whitepaper Nexus: It’s all about Physical Presence. Or is it?
Or join us for a free educational webinar on April 17: New State Swing – How To Take the Lead in All 50 States where you’ll learn the critical steps to growth and what you need to know when looking to go forward with a new state.