Where does my small business need to pay and file sales tax?

Whether your business has a physical storefront or you sell online — these days, of course, many businesses fall into both categories — you most likely need to collect sales tax in at least one state, and possibly many more.

It all comes down to if you have nexus, or a strong enough connection to a particular state. And while that connection used to be based largely on a business’s physical presence in a state, the advent of online sales has changed everything.

And so has the recent U.S. Supreme Court decision in South Dakota v. Wayfair, Inc.

Brick-and-mortar businesses

If you operate an actual storefront, selling items to customers only in person, it’s pretty easy to figure out whether you have nexus: You almost certainly do in every state where you have a location, and you’ll need to collect sales tax (except on items that are exempt).

Online sellers

However, if you also sell products online — or if you only sell products online — determining nexus can be a little more tricky. After all, you might sell to customers in 30 different states. Do you need to collect sales tax for every one of them?

Maybe not quite yet. But in the South Dakota v. Wayfair ruling, the court solidified a state’s authority to impose sales tax obligations on out-of-state sales. And that means more and more states are likely to use South Dakota’s economic nexus approach in the coming months and years — indeed, some already have these laws on the books.

Economic nexus expands the concept of nexus; rather than basing it on a physical location, these laws typically require companies with a certain level of economic or sales activity in a state to collect sales tax for that state.

This overview will give you a better understanding of the impact of the case and economic nexus. For more details, including the latest developments and a map of states with economic nexus laws, visit our South Dakota v. Wayfair resource hub.

So what do you do now?

If you know you have nexus in a state, you need to collect sales tax and file returns according to that state’s requirements. (That means you first need to register for a sales tax permit. Certain states allow you to complete this online, but others require a call or a paper form.)

If you don’t know where you stand with nexus, consider working with a tax professional who can help you determine what’s appropriate.

Either way, it’s probably a good idea to start learning about sales tax because the South Dakota v. Wayfair decision has the potential to completely redefine not only who has to pay sales tax, but whether your business will need to charge it.

Avalara can help. We make the sales tax process hassle-free, all the way from calculations to filing returns — even in multiple states, each with its own rates and regulations. We offer a full suite of solutions for small businesses tailored to what you need today, with the flexibility to grow with you tomorrow.