6 Things to Know About Sales Tax Nexus

Sales Tax

There’s a lot to know about sales tax nexus that people either don’t know or choose to ignore. If your business makes more than $500,000 in revenue across all states combined, it’s important for you to understand the rules and regulations on sales tax nexus and keep up with changes made by each state. Otherwise, you could end up spending more in taxes than you have to.

Don’t worry, though! We’ve put together a list of 6 things to know about sales tax nexus so you can keep track of everything easily. Keep reading below to get started!

1) What is Sales Tax Nexus?

Sales tax nexus refers to when your business has some sort of connection with a state. There are several factors that can cause nexus to be established, one of which is having employees or facilities in the state.

These days, just about every business has some sort of nexus, but what you’re required to pay varies depending on how much your business makes and how closely it’s tied to the given state.

When your business makes more than $500,000 in revenue across all states combined, you’re required to pay state taxes. This is the ‘minimum nexus’ for most states.

For more help understanding sales tax nexus go here.

2) When does a state have sales tax nexus for your business?

Having sales tax nexus and collecting sales taxes can both be challenging.

As stated above, if your business makes more than $500,000 in revenue across all states combined, you will have to pay state taxes. This is the ‘minimum’ nexus for most states; however, some states may establish a connection with your business when making less than $500,000 in revenue.

3) How do you avoid paying more than you need to in sales taxes?

It’s important to know what your business’ ‘nexus’ is for each state and how much revenue the state expects from you. Of course, this is all personal information that isn’t shared on a public level, but you can usually just ask the state’s tax agency directly.

On top of that, you want to make sure you don’t accidentally create nexus in states where your business doesn’t yet exist. This happens frequently with remote employees working out of their homes or telecommuting (i.e., you send someone to another state on an assignment for a week or two).

In order to avoid paying more money in taxes than you need, make sure that your staff isn’t spending a lot of time in other states and that they’re assigned to tasks that keep them at home for the majority of the time.

4) Why it’s important to know how much money you’re spending on taxes each year

One of the biggest reasons for this is that you’re able to forecast how much customer demand is going to cost you. That means fewer surprises and a lower chance of unexpected dips in your company’s income.

This doesn’t just help with sales tax nexus, though; it also helps when hiring new employees or negotiating contracts with partners – or when you simply need to know how much money to put in the bank each month for taxes.

5) The pros and cons of collecting sales tax from customers vs the state doing it for you

The two biggest advantages of collecting sales tax are that it’s less work for your company, and businesses are able to make purchases without having to pay sales tax on them.

However, business owners should remember that it is generally more expensive to collect sales tax from customers than for the state to do it themselves. On top of that, collecting sales tax can become a headache if you don’t have a system in place to keep track of everything automatically.

6) What are some ways states can collect unpaid taxes if businesses don’t voluntarily pay up?

Most states will give you a long time to pay your unpaid taxes before they take any action, but that still doesn’t mean it’s good policy for them to ignore the issue.

After all, there is a chance that you’ll go out of business or stop selling in certain states and never pay the sales tax you owe. In this case, the state may take your property as payment if you don’t have enough cash on hand to cover what you owe. That means they could sell off your inventory and equipment in order to get your money – which obviously isn’t ideal for anyone involved.

States can also charge interest on unpaid taxes each month. Meanwhile, you could be required to pay penalties if you fail to file your tax returns in a timely manner.

If you end up having excessive unpaid taxes after all of this, the state may also charge you with failure to file or even tax evasion – both are very serious charges that can land you in jail for several years.

That’s why it’s so important to track your sales tax nexus correctly, stay on top of all the paperwork, and pay what you owe each month.

Conclusion

These are the six things you need to know about sales tax nexus. You can avoid paying more than you need to if you know your state’s rules, how much revenue it expects from your business, and what the consequences could be for not paying up.

If you find yourself with unpaid sales tax at the end of the year, take care of all forms immediately and don’t ignore the issue. Doing so could lead to serious penalties for your business, including jail time in some extreme cases.