San Francisco Bay Area Business Owners: Beware the Sales Tax Nexus
If your San Francisco Bay Area business sells a lot online, then we’re coming into the most wonderful time of the year. And this year, your customers will probably shop your website (and elsewhere online) EARLY in order to bypass all those supply-chain snafus. Cha-ching for you. Just don’t forget the taxman – and we don’t mean the IRS. We mean the sales tax in states where you sell your stuff. Yes, if you sell enough online, you’ve got to pay attention to the sales tax nexus. You see, you’d be amazed at how many times this topic becomes “a thing.” In fact, getting this wrong is one of the primary ways that businesses get in trouble with various revenue agencies (IRS and state revenue offices) because they don’t handle it properly. But before we dive into this, let’s make sure that your business (and your family) is also capturing every available income tax-saving strategy available right now, and do a little taxplanning: Find us here: Patti (408) 241-4100 Gale 408-775-7800 Now let’s get a little scary together, shall we? San Francisco Bay Area Business Owners: Beware the Sales Tax Nexus “The Internet, once heralded as an exciting new medium of communication, is now little more than a vast mail-order catalogue.” -Tom Hodgkinson Everybody who lives in a state with a sales tax knows about that extra little bit that gets tacked on to purchases. That’s usually the point in the retail cycle when you hear muttering about the mayor, the governor, and/or everybody in the state capital. That little bit is the local sales tax. Most states have one. What about when you buy something online? Just before you hit “check out,” that little amount gets tacked on there, too. What about when you’re the one selling over the internet? Have you ever heard of Wayfair? The home-goods and furniture company that does almost eight figures a year in global online sales? That Wayfair? How about the U.S. Supreme Court’s 2018 Wayfair decision? No? Well, that’s when our high court agreed with the state of South Dakota, which had long claimed that Wayfair owed sales tax from tons of transactions in that state. The Supreme Court then basically gave South Dakota the authority to tell all online sellers that if they sold more than the low six figures or a couple hundred sales a year in the state, then they had to collect and send back South Dakota sales tax. That’s because a company then had economic nexus. “Economic nexus?” Sounds serious. Is there a cure? Sure. If you sell enough, collect sales tax from your online customers and send it back to the state. Period. Taxing in a boom Now, most states enforce economic sales tax nexus – not to mention all the cities and even towns out there that levy their own sales tax based on economic nexus. (Not-so-fun fact: An office or a warehouse is one thing that can give a company “physical nexus.” So can your staff working remotely in another state – check with us ASAP on this…) States’ timing is suspiciously perfect: E-commerce and buying over the web were already red hot before the pandemic made it explode. Research shows that more than nine out of ten internet users worldwide have purchased products online and that e-commerce is growing annually at about a 23% clip. Holiday click-and-buy in the U.S. alone this year is expected to be in the hundreds of billions of dollars. That’s a lot of sales tax. In this case, your customers pay the tax. You collect and keep it for a set time – say a calendar quarter; depends on how often a tax jurisdiction makes you file – and then you send it into a department of taxation/revenue. Your next steps with the sales tax nexus Funny thing about people in the government who slap you with a tax: They tend to want to see the money. And they can get nasty when they don’t see it. Think “sales tax audit,” “fines,” or worse. If your San Francisco Bay Area business sells a lot into a state, check with that state’s department of taxation and see what the deal is under “sales tax economic nexus.” If you are over or near the thresholds of dollars or number of sales, keep the following in mind: – Taxability of your products. Not all jurisdictions levy sales tax on everything sold all the time. A lot of states have sales tax holidays for occasions like back-to-school shopping, for instance. Jurisdictions sometimes split hairs on tax exemption. Some states exempt groceries from sales tax, for example, but require you to charge a sales tax on other kinds of food. It can even depend on whether chocolate or other candy is involved, and what a state considers “candy,” and so on and so on… aren’t taxes fun? Again, check with the state. – Register. If you think you’ve got nexus in a state, register there to collect and remit sales tax. You can usually register online, which is fast. Most states let you register for free, but not all. – Keep track. You have to calculate the right tax to collect and send back; there’s software that can help with this. You also need to keep a calendar of when you’re supposed to file your sales tax return with what state and to keep up on all the notices. The taxman loves to send notices – and some might need your quick attention. You can handle this new tax obligation with a little work and attention – but don’t let it slide. If we can help, please let us know. Patti (408) 241-4100 Gale 408-775-7790 To your San Francisco Bay Area business staying out of hot water … Patti ONeill and Gale Bergado (408) 241-4100 ONeill & Bergado
