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Sales Tax Nexus for Online Sellers

Tuesday, April 17 is the day that individual income tax returns must be submitted to the federal government. The deadline generally falls on April 15, but it moves to the following weekday when it falls on a weekend or holiday.  Lucky for you, this year’s date got bumped twice: once for the weekend, once for Emancipation Day, celebrated in the District of Columbia.

If you are an online seller, you know all too well that the business of taxes can get tricky.  This is even more the case with the continuing evolution of sales tax nexus.

Sales Tax Nexus

While individuals and businesses pay their taxes to the government, online sellers are required to collect sales tax in the jurisdictions where they have sales tax nexus. The common definition of sales tax nexus is the “presence” of an online business in a state. This presence requires compliance with the applicable sales tax laws of the state.

An online business that does not have a presence, or nexus, in a state is not obliged to collect sales tax from merchandise sold in the state.  However, an entity may be considered present in a state when it has an office or warehouse within the state’s borders, or employees working in that state.

Confused, yet?

Sales tax nexus basically boils down to three tax collection scenarios:

  • Home state nexus – If you live in and run your online business in California, you have a physical presence there and must collect taxes from buyers of your merchandise outside of California.
  • Inventory nexus – If you keep your inventory in the state of Washington and you live in California, you will be responsible for collecting sales tax in both states.
  • Employee nexus – If you have your online company in California, a warehouse in Washington, and employees in Nevada, you have sales nexus in three states.

If you have an online business, you should research and comply with tax obligations in all the states where your business operates. If you fail to collect tax from the merchandise that you sell as dictated by state sales tax regulations, you will have to answer to the IRS.

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