If you run a business that sells products online, hopefully you're aware that you need to be collecting sales tax from your customers and remitting it to your state on a regular basis. For online retailers, however, just which states are requiring you to remit sales tax has become complex and confusing issue. 2019 has been a particularly tumultuous year for sales tax changes, and it's not over yet for e-commerce businesses. Here are three things every online seller needs to know about recent changes to state sales tax.
1. The definition of economic nexus has changed
At issue is the concept of economic nexus, which essentially means your business has a connection to a given state that requires you to collect and remit sales tax for sales made in that state. Before online retail was really a thing, nexus was generally defined as a business having a significant physical presence in a given state. That concept, however, has gone out of the window as online sales have taken up an ever-increasing slice of the retail pie. A 2018 Supreme Court ruling opened the flood gates for states to get their share of pie from businesses that have no physical presence but do a significant amount of business there. States quickly began to revise their definitions of economic nexus with expansive new regulations kicking in throughout 2019.
2. It's not just big online retailers that are affected
If you sell any type of product online, you're affected by the sweeping changes across the states. Most states have thresholds to exempt small sellers, but those vary widely. If you run a brick-and-mortar store but also offer online shopping as a secondary outlet, you too need to be aware of these changes. Online marketplaces (for example, Amazon or Etsy) have been collecting sales tax on behalf of their sellers for sometime now, but that doesn't mean sellers are off the hook when it comes to sales and use taxes. Digital goods—like music, photos, and ebooks—can be taxed, and even affiliate sales are impacted in some states. In short, all businesses that make money using the internet need to check out the changes.
3. Every state is doing its own thing, but 24 of them comply with streamlined sales tax
Streamlined sales tax (SST) initially launched in 2000 as a way to help simply sales tax codes across the states. With the new ruling, SST may begin to experience a revival. Currently 24 states have adopted the streamlined measures, and we expect to see more of them fall in line in the coming months.
Partner with an expert to stay in compliance with state sales tax laws
We strongly recommend all businesses partner with a professional to ensure that you're staying in compliance with state tax regulations. Not only are the variances from state to state a lot for any one retailer to keep up with, but the risks of non-compliance are significant. In fact, some states apply economic nexus beyond sales tax. Texas, for example, will start applying nexus to franchise tax in October 2019.
If you sell any type of product online, check out Avalara's 2019 mid-year update for sales tax changes. It's a comprehensive guide that will help point your business in the right direction. By December of 2019, 43 states will enforce economic nexus (33 of those went into effect July 1). We can advise on your sales tax strategy and partner with Avalara to complete the filings. Contact us today to learn more.