States of Confusion
How do you know if you should be filing tax returns in other states? This question seems to be vastly more complicated than it should be for businesses trying to figure out how to comply with state laws. It used to be a fairly simple answer – not physically stepping foot in the state? No nexus, and therefore no requirement to file. With the 2018 decision in the Supreme Court case Wayfair v. South Dakota (which you can read about here), whether or not you should be filing in a state has become a much more difficult determination. As a result of Wayfair many states are now imposing sales tax nexus if you’ve got at least $100,000 in sales and/or 200 transactions into that state for the previous year. That sounds simple enough, right?
Well…not really. The $100,000 benchmark is a good place to start when reviewing your sales into other states, but plenty of states use a different dollar amount, and the rules are constantly changing! Even if you have 200 transactions that don’t add up to $100,000, you could still have nexus in the state. Have you considered local taxes? What about your nontaxable sales? These may count toward the threshold, and may even be taxable in the other state since each state has their own rules on taxability. Even if you are making nontaxable sales into another state, have you collected any necessary exemption certificates, following the rules of that state? Finally, have you considered whether you may also be required to file other types of state returns such as a franchise tax return?
Although I could go on all day about the nuances of state tax nexus…it’s probably more helpful and less coma-inducing for you if I actually give you an idea of where to go from here. My recommendation is to start by identifying any states that you are not already filing sales tax returns where you have over $100,000 in sales in the past year or ANY physical activity (think independent sales rep or remote employee). If possible, follow that up by identifying any additional states with more than 200 transactions. From there, it is going to get very specific depending on what state you are looking at and the nature of your business — however, this is where we can help. McKonly & Asbury’s State and Local Tax Team specializes in state tax nexus and return compliance.
- We can advise you of what you need to do based on your specific situation to become compliant. The goal here is to determine if you should be filing sales tax returns or other tax returns in additional states based on any activity you have in that state.
- If we do identify a state where a filing is required, we can assist in getting you compliant which could involve a state voluntary disclosure program to avoid penalties or guidance on how to register in the state.
- We can assist in determining taxability of products/services, tax rates, filing frequencies, and anything else needed for compliance.
- Going forward, we can file those other state sales tax returns for you, making the process as seamless for you as possible.
For more information on McKonly & Asbury’s State and Local Tax Services, or for questions regarding this article, please contact Lindsey Waltemyer, SALT Leader and Tax Manager at lwaltemyer@macpas.com.
