Category: Tax Chat

A sales tax audit is like a rite of passage. Your company will likely go through one at some point, even if you’re doing everything right. How stressful a sales tax audit is depends largely on how well you’ve prepared for it. 

Remember, getting selected for an audit doesn’t reflect your business’s morals or character. In many cases, it’s just a state checking in to confirm you’ve dotted all your I’s, crossed all your T’s, and paid all the tax you owe.

Direct Audits

Your business may owe sales tax in a state where you have a physical presence or economic nexus (aka connection). If your business has no presence in a state, you’ll generally not need to collect or pay sales tax there.

It seems easy-peasy, but it’s not. States can have differing rules for physical presence and different thresholds for economic nexus. Mess one of those up, and a state may come a-knocking with a direct audit. 

We’ve broken down all you need to know to get through a direct audit, including:

• How to prepare
• How to treat the auditor (be nice!)
• What documents you need
• What sampling is
• How to appeal
• What happens next

Streamlined Audits

The Streamlined Sales and Use Tax Agreement exists to make everyone’s sales tax lives a little easier, especially in a post-South Dakota vs. Wayfair world. Twenty-four states are full members of the Streamlined Sales Tax Governing Board and have passed legislation to make sales tax a little easier. 

Some of the protections passed by Streamlined states include liability relief if a business doesn’t collect the right tax amount because of a data error from the state or an error made by certified sales tax software. 

If your business uses TaxCloud, you get extra audit support in Streamlined states. We’re a Certified Service Provider (CSP), which means we have an agreement with each of the Streamlined states (and Pennsylvania). 

Those states can audit our records to ensure we collect, calculate, and report the correct sales tax amount. Often, the audits occur on a three-year cycle, but only some states audit us every three years.

Since we’re the company getting audited in this case, your business may not need to get involved at all. However, there may be instances when we must contact you to get some information to make the audit go smoothly. We may need to request the following:

• Product mapping and descriptions
• Purchaser’s addresses
• Invoices
• Return records
• Exemption certificates

Having those documents and information handy and well-organized will help the audit go smoothly and may reduce the need for us to make a special request of your business.

TaxCloud Helps Ease Audit Pain

No one wants to be audited, but the process doesn’t have to be the stuff of nightmares. Using our certified sales tax software means you can be confident that the correct amount of tax is collected in each state for each transaction, reducing the risk of an audit. 

And, thanks to the Streamlined Sales and Use Tax Agreement and our status as a CSP, your business has liability protections if an error in our sales tax calculations triggers the audit.

TaxCloud can be right by your side, keeping audits at bay or taking the heat for your business if an audit does occur. Contact us today to learn more.

You’re looking for sales tax software that takes the pain out of calculating, collecting, and paying sales tax. But, if you operate an ecommerce business that sells to customers across multiple states, you need much more than that. You need a support system to ensure you’re collecting the right amount of tax and that sales tax rules don’t burden your business too much.

TaxCloud gets it. We’re a sales tax compliance solution for growing online businesses. We want to help you collect and pay sales tax, sure. But we do more than that. We stand up for the little guy and work to make sure states don’t introduce laws or regulations that hurt your business.

Dave Steines, our Vice President of Government Affairs, breaks down how we go to bat for small businesses.

We Work With States on Your Behalf

In a world of bureaucratic red tape, it helps to have an in. Consider TaxCloud your business’s “in.” We have direct contacts with Streamlined Sales Tax (SST) and state personnel, which helps us help you resolve any issues accurately and quickly. We work with states to address outstanding concerns, such as missing or amended item returns, correct tax treatment of products, and audit assistance. 

As a Certified Service Provider (CSP) with the SST program, we can manage state tax registration and renewals, exemption certificates, and sales tax filing for businesses that operate in an SST member state.

Our TaxGeeks are also actively advocating for online businesses. We participate in workgroups and committees with the SST to keep member states from changing the Streamlined Sales and Use Tax Agreement (SSUTA) in a way that negatively affects our merchants. 

We get that sales tax can be overly complicated, and the rules can be all over the place. That’s why we’re working hard to push states to simplify things, to ease up the burden on you.

We’re Looking Out for Your Best Business Interests

Our TaxGeeks work hard behind the scenes to protect the interests of the online retailers who use our sales tax software. We work directly with states to ensure that Taxability Information Codes (TICS) are correct and accurate. Merchants rely on TICs to limit their sales tax liabilities. 

South Dakota vs. Wayfair has had a massive impact on remote sellers, who now may have to collect sales tax in states where they don’t have a physical presence. We participated in a Wayfair Implementation Update Panel with the National Conference of State Legislatures (NCSL). We advocated for improving many areas where businesses struggle to comply. We also work with SST to reach out to non-member states, getting those states to pass provisions to reduce sales tax burdens and simplify the collection process.

We Show You the Money

What do we have to show for our hard work? A lot! 

Following the Wayfair panel, where we showed that the 200-transaction threshold burdened small businesses, several states listened. Those states are stating to drop the transaction threshold from economic nexus requirements. Louisiana is a recent example of a state that dropped the transaction threshold. 

TICs are meant to make it easier for merchants to tax or exempt products, but TICs can change frequently. Nebraska recently certified TaxCloud’s TICs, so you can rest easy that you’re correctly taxing sales to customers in that state. The change also provides liability relief to our merchants and TaxCloud in future audits.

Thanks to our efforts, several non-SST member states have taken steps to simplify sales tax filing. Pennsylvania has a CSP program and Connecticut, Illinois, and Missouri passed laws that allow a CSP to assist remote sellers.

You’ve got a growing online business to worry about. You don’t need to worry about sales tax, too. TaxCloud has you covered and is working hard to make sales tax regulations work for you. Get started with our software today.

In the past, businesses typically needed a physical presence in a state before collecting and paying sales tax. Now, many states require companies with an economic nexus also to collect and pay sales tax. Companies with economic nexus are typically remote sellers. The what, where, and how of remote seller sales tax varies by state.

Not sure which states expect you to pay tax? That’s why we created this guide to remote seller sales tax by state.

What’s a Remote Seller?

Before we jump into each state’s rules for remote sales, we need to define what a remote seller is. 

Remote sellers are businesses that don’t have a physical presence in a state (like an office or warehouse) but deliver services or products to customers in that state. 

The exact definition of what a remote seller is varies by state. In Texas, for example, your business is considered a remote seller if you sell products or services. To qualify as a remote seller in Michigan, your business must sell tangible property. 

Before the Supreme Court’s South Dakota vs. Wayfair decision, remote sellers typically didn’t need to worry about paying sales tax in states where they had no physical presence. Post-South Dakota vs. Wayfair, remote sellers can have economic nexus, meaning they may have a tax obligation.  

Rules for Remote Seller Sales Tax by State: Sales vs. Transactions

Of course, states have different rules for remote sellers and sales tax. That would make things too easy. 

Instead, each state has its own threshold rules for determining whether your company has economic nexus. Economic nexus can apply when your company reaches a threshold. In some states, that threshold is a sales amount, such as $100,000 in annual sales. In others, it’s a transaction number, such as 200 transactions. 

A few states use an either/or rule, meaning your company triggers nexus when it passes $100,000 in sales or has 200 transactions. Others use an and rule, meaning your company triggers nexus when it has $100,000 in sales and 200 transactions. 

And for good measure, a few states use one or the other, looking at transactions but not sales or sales volume but not transactions. 

Rules for Remote Seller Sales Tax by State: Gross vs. Retail Sales

To complicate things, states don’t always agree on the type of sales to include in the threshold. Some states use your company’s gross sales when determining the threshold, meaning all your sales in the state, including those that would be exempt from sales tax (such as sales to resellers or tax-exempt organizations). 

Some states use retail sales when determining the threshold amount, which includes any sales in the state that aren’t for resale or to wholesalers but may be for tax-exempt products (such as clothing in certain states).

Finally, a few states look at your company’s taxable sales when determining whether you meet the threshold. Taxable sales are retail sales are products where tax is due. It excludes sales of tax-exempt products. 

How to Keep up With Remote Seller Sales Tax by State

Keeping track of transactions vs. sales and gross vs. retail sales gets complicated. To help you out, we created state guides and a handy threshold map that illustrates the transaction threshold requirements in each state. 

To simplify things further, our sales tax software can do the heavy lifting for you. It calculates your sales tax obligations and collects the tax for each sale. We can also help you streamline your sales tax filing and payments. 

Don’t get lost in all the details of remote seller tax rules. Sign up for a TaxCloud account and let us do the hard work for you.  

Each state has its own sales tax rules and requirements, and within each state, multiple cities and municipalities have their own sales tax rules, for a total of more than 13,000 sales tax jurisdictions. Luckily the answer to “Do I need to collect sales tax in every state or jurisdiction” is likely no. 

So when do you need to collect sales tax, and more importantly, how do you know that you need to collect sales tax? We’ll break it down for you.

Do I Need to Collect Sales Tax in Every State?

Your business doesn’t need to collect sales in tax in every state because not every state collects sales tax. Five US states are sales-tax-free:

1. Alaska
2. Delaware
3. Montana 
4. New Hampshire
5. Oregon

The remaining 45 states, plus Washington, DC, collect sales tax. Of those 45 states, 38 allow cities, counties, and municipalities to collect tax, too.

How to Figure Out If You Need to Collect Sales Tax in the Other States

You can determine if you need to collect sales tax in a state based on your business’s connection to that state. Before 2018 and South Dakota v. Wayfair, your business needed to have a physical presence in a state before it had to collect sales tax.

After South Dakota v. Wayfair, businesses with an economic nexus in a state can be required to collect tax. 

Physical Presence

It can be easy enough to figure out if your business has a physical presence in a state. If your main office is in a particular state, your company has a physical presence there.

But physical presence can be more nuanced in a few states. In some cases, your business may have a physical presence if it stores inventory in a particular state, has a remote employee who lives in a particular state, or if you attend a trade show in a state. 

In those cases, your company could have a physical presence and be required to collect sales tax from customers in those states. 

Economic Nexus

South Dakota v. Wayfair kicked the door to economic nexus wide open. Now your business only needs to have a financial or transaction connection with a state to collect sales tax. 

What that connection looks like varies by state. You may need to start collecting sales tax once your company surpasses a certain sales amount, such as $100,000 or $500,000, during a 12-month period. 

Or, you may need to start collecting tax once your business has a certain number of sales, such as 200. In a few states, it’s an either/or situation, meaning you can either have $X sales or X number of sales to trigger nexus. 

No Nexus, No Tax Collection Required

There may be a few states where your business doesn’t have a physical presence and doesn’t reach the economic nexus threshold. 

You’re not required to collect sales tax in those states. Your customers may have to pay the tax themselves, though. 

Even though you’re not required to collect sales tax in states where you don’t have nexus, you can still choose to do so. Collecting the tax eases the burden on your customers in those states. Plus, if you use sales tax software, deciding to collect tax in states where you don’t have nexus is simple.

TL;DR: Do I Need to Collect Sales Tax in Every State? 

In short: No. Not all states collect sales tax and those that do require you to have a physical or economic connection, aka nexus. 

How do you figure out where you need to collect sales tax? Our sales tax state guides can help. In each guide, we break down the nexus thresholds and let you know what items are always taxed and which are tax-exempt.

TaxCloud keeps your business sales tax compliant. Our software keeps track of your nexus status and collects sales tax once triggered. 

We know sales tax is complicated, and you’ve got better things to think about. Trust us to handle your sales tax so you can focus on growing your business. Get in touch today!