Do I Need to Collect Sales Tax in Every State?
Understanding sales tax collection in the US is crucial for businesses operating across regions. The variations are significant, with some states imposing sales tax on goods and services while others exempt certain items or impose lower rates. This diversity adds layers of complexity that can directly impact a business's operations and financial health.
For many small businesses, the question of 'Do I need to collect sales tax in every state?' can be challenging, primarily because of the concept of economic nexus. Nexus is the sufficient connection between a business and a state that triggers the obligation to collect and remit sales tax.
Given the complexity of sales tax laws and the constant changes in nexus definitions, businesses often struggle to navigate these requirements and ensure compliance. Zamp offers a reliable and efficient solution to this challenge with our multi-state sales tax filing service. This service simplifies the process of sales tax filings across multiple states, allowing businesses to focus on their core operation.
Understanding Your Sales Tax Nexus
Physical Presence
Traditionally, a physical presence nexus was the primary criterion for determining sales tax obligations. This presence typically involves having a physical presence such as a brick-and-mortar store, office, warehouse, or employees in a particular state. However, the landscape shifted in 2018 with the landmark Wayfair vs. South Dakota Supreme Court decision.
In this ruling, the Court upheld South Dakota's economic nexus law, which imposed sales tax obligations on out-of-state sellers based on their economic activity in the state, regardless of physical presence.
This economic activity is often defined by exceeding a specific sales threshold (e.g., exceeding $100,000 in annual sales), or a certain number of transactions within the state.
The Wayfair decision empowered states to enforce sales tax collection from out-of-state sellers, significantly expanding the scope of sales tax nexus and imposing new compliance burdens on businesses.
Economic Activity Nexus
Economic nexus is triggered based on a business's economic activity within a state, like hitting a sales revenue or transaction volume threshold, typically quantified in monetary terms. This means that even if a business lacks a physical presence in a state, it may still be required to collect and remit sales tax if it meets the specified economic thresholds.
Affiliate marketing Nexus
When a business enters into agreements with affiliates located in different states to promote its products or services, it may inadvertently create an affiliate sales tax nexus in those states. This is because some states consider affiliates' activities as establishing a connection significant enough to warrant sales tax obligations for the business.
Here's a glimpse into other factors that can create a nexus:
Origin-Based Method
When you operate your business in an origin–based state, the sales tax you collect is based on your business's location. This means you must collect sales tax based on the state and local tax rates applicable to your business's location.
Destination-Based Method
In states with a destination–based system, sales tax is determined by the buyer's location. You will collect sales tax based on your customer's state and local taxes.
Book a call today
We'll answer all of your sales tax questions & address any of your concerns to ensure that you never have to worry about sales tax again-
1Book a free 30 minute call
-
2Meet with one of our experts
-
3Get sales tax off your plate
Understanding sales tax collection in the US is crucial for businesses operating across regions. The variations are significant, with some states imposing sales tax on goods and services while others exempt certain items or impose lower rates. This diversity adds layers of complexity that can directly impact a business's operations and financial health.
For many small businesses, the question of 'Do I need to collect sales tax in every state?' can be challenging, primarily because of the concept of economic nexus. Nexus is the sufficient connection between a business and a state that triggers the obligation to collect and remit sales tax.
Given the complexity of sales tax laws and the constant changes in nexus definitions, businesses often struggle to navigate these requirements and ensure compliance. Zamp offers a reliable and efficient solution to this challenge with our multi-state sales tax filing service. This service simplifies the process of sales tax filings across multiple states, allowing businesses to focus on their core operation.
Understanding Your Sales Tax Nexus
Physical Presence
Traditionally, a physical presence nexus was the primary criterion for determining sales tax obligations. This presence typically involves having a physical presence such as a brick-and-mortar store, office, warehouse, or employees in a particular state. However, the landscape shifted in 2018 with the landmark Wayfair vs. South Dakota Supreme Court decision.
In this ruling, the Court upheld South Dakota's economic nexus law, which imposed sales tax obligations on out-of-state sellers based on their economic activity in the state, regardless of physical presence.
This economic activity is often defined by exceeding a specific sales threshold (e.g., exceeding $100,000 in annual sales), or a certain number of transactions within the state.
The Wayfair decision empowered states to enforce sales tax collection from out-of-state sellers, significantly expanding the scope of sales tax nexus and imposing new compliance burdens on businesses.
Economic Activity Nexus
Economic nexus is triggered based on a business's economic activity within a state, like hitting a sales revenue or transaction volume threshold, typically quantified in monetary terms. This means that even if a business lacks a physical presence in a state, it may still be required to collect and remit sales tax if it meets the specified economic thresholds.
Affiliate marketing Nexus
When a business enters into agreements with affiliates located in different states to promote its products or services, it may inadvertently create an affiliate sales tax nexus in those states. This is because some states consider affiliates' activities as establishing a connection significant enough to warrant sales tax obligations for the business.
Here's a glimpse into other factors that can create a nexus:
Origin-Based Method
When you operate your business in an origin–based state, the sales tax you collect is based on your business's location. This means you must collect sales tax based on the state and local tax rates applicable to your business's location.
Destination-Based Method
In states with a destination–based system, sales tax is determined by the buyer's location. You will collect sales tax based on your customer's state and local taxes.
Book a call today
We'll answer all of your sales tax questions & address any of your concerns to ensure that you never have to worry about sales tax again-
1Book a free 30 minute call
-
2Meet with one of our experts
-
3Get sales tax off your plate
Collecting Sales Tax in Every State FAQ
Sales tax software can automate sales tax calculation based on location(customer and seller) and product type, track sales tax collected and prepare reports for filling, integrate with accounting software for streamlined record-keeping, and generate sales tax reports.
Any business that makes taxable sales(especially across multiple states) can benefit from tax sales software. It saves time, reduces errors, and ensures compliance with complex regulations.
Our automated sales tax software seamlessly integrates with existing business systems, such as e-commerce platforms and ERP software. This integration provides benefits such as
Automated tax calculations: our software automatically calculates the appropriate sales tax for each transaction based on the product type, customer location, and applicable tax exemptions. This eliminates manual calculations and reduces the risk of error.
Regulation and Real-time tax rate update: the software automatically retrieves the latest tax rates and rules based on your business location and your customer's location.
Streamlined data transfer: Data (order details, customer information, etc.) is automatically transferred between the sales tax software, your e-commerce platform, and your ERP.