Don’t Know What Nexus Is? You’re Not Alone
- Sales Tax
- Jun 10, 2016 | Suzanne Kearns
The simple mention of the word “nexus” is enough to cause many ecommerce business owners to go running for cover. It’s not only the fact that states can force online sellers to collect and remit sales tax for the most tenuous of connections, but it’s also because nexus is just so darn confusing. And if your mind goes fuzzy when you try to think about the topic, I want to assure you that you’re not alone.
Let me give you an example.
As a writer for this blog, I oftentimes have to call a state’s Department of Revenue to ask questions because the tax codes aren’t always…well, comprehensible. You know what I mean?
So a couple of weeks ago, I called an unnamed state (We wouldn’t nexus shame anyone!) and asked the person in the sales tax department to clear up one of their nexus statutes. After a few minutes of talking to her, I thought maybe she hadn’t heard my question correctly, so I rephrased it. She still seemed confused, and before long I realized the problem. She didn’t know what "nexus" is. And she works in the sales tax department.
Eventually, I had to talk to the legal department because no one in the tax department could wrap their minds around this fairly simple nexus question.
After this experience, I got curious. Just how many people get tied up with the concept of nexus? So I dug around a little and came up with a couple of examples of people who got into trouble because they didn’t understand what nexus was.
One guy tells a story of being in his office when his CPA walked in and handed him a sales tax bill from Texas. He laughed, thinking it was a funny joke, but it turned out that the joke was on him. It seems that he and some other people from his company had attended a trade show in the Lone Star State, and you guessed it, that triggered nexus. He stopped laughing when he realized he really was responsible for sales tax in the state.
Another Amazon FBA seller found out two years after she started selling on the site that she was responsible for sales tax in 13 states because her inventory had been stored there. So, she tried to do the right thing and began registering to collect sales tax with those states and talking to them about correcting her mistake. But some of the states didn’t appreciate her honesty, and she was threatened with fines and even jail time if she didn’t come up with the back taxes immediately. Amazingly, the seller kept her sense of humor and didn’t let her lack of nexus knowledge get her down.
So the next time you’re feeling bad about yourself because you can’t understand something about nexus, remember that you’re not alone. Many other sellers are in the same boat, and it seems that even sales tax professionals have a difficult time with the concept.