Where Will You Create Sales Tax Nexus in 2016?
- Sales Tax
- Dec 7, 2015 | Laura McCamy
The end of the year is a time that many sellers take stock both literally and metaphorically. As the final sales figures roll in, you may be looking at trends over the past year to assess how your business might grow in 2016. If your New Year’s resolution is to sell at more events around the country, now is a great time to think about where you might have sales tax nexus in 2016.
Nexus is a presence in a state that triggers the obligation to collect and remit sales taxes in that state. Every US business has nexus in at least one state. You are probably already collecting and remitting sales taxes on sales to customers who live in the state where your business is based.
Shipping orders to customers in other states from your base of operations does not create nexus. However, traveling to another state to sell your products probably does. Safe harbor rules, which protect large businesses from creating income tax nexus every time they attend a trade show, probably won’t exempt you from your obligation to collect and remit sales tax on the direct sales you make to customers in another state, even though you are only there temporarily.
As an example, let's look at a fictional couple, John and Wendy Hottair. The Hottairs love hot air ballooning. After they both retired, they started a business selling balloon-themed items: mugs, ties, place mats, and jewelry. The set up an ecommerce website, UpUp&Away.com, and they were in business.
Before long, however, the travel bug bit the Hottairs. They realized that if they hopped in their RV and set up booths at balloon festivals in various states, their travel would be tax-deductible, they would connect with new customers in their target audience, and they would get to attend the festivals. It was a balloon-lover’s dream.
But then things got complicated. John and Wendy soon discovered that before they could open their booth at the Albuquerque International Balloon Fiesta, they had to register with the State of New Mexico to collect sales taxes. The same was true when they sold at the Arizona Balloon Classic, the Colorado Balloon Classic, and the Great Reno Balloon Race in Nevada. Before long, the couple found themselves shuffling through sales tax returns instead of enjoying the scenery.
After their first year on the road, the Hottairs sat down and plotted a course that took them to more balloon shows in fewer states, so they could maximize their time on the road and minimize their paperwork. If you are planning to travel to sales events out of state in 2016, you might want to do the same
Trade Shows and More
Not every interstate trip involves the kind of direct selling that triggers sales tax nexus. If you have booths at trade shows in different states, you might be writing only wholesale orders, which aren’t subject to sales tax. This type of activity generally does not trigger sales tax nexus.
However, if the trade show has a day where it is open to the public and you sell your items directly to consumers, you will need to collect and remit sales tax in the state where the trade show is located.
Traveling to different states to sell and promote your products can be a great move for your business. You can reach new audiences, connect with new partners, and gather inspiration for future innovations.
To make your 2016 travels smooth and successful, it’s a good idea to research the sales tax regulations of each state you are going to visit. Find out if the state has a special sales tax return for vendors who are selling in the state one time rather than on a regular basis, like Michigan’s concessionaire’s tax return. And consider using tax reporting software to help you manage your multi-state sales tax filings with ease.