Do you sell products to different companies throughout the US? Are some of your clients reselling your product and some are the end user? How are you documenting each client transaction and keeping up to date with ever changing tax tables? Are you banging your head on your desk right now?
As a bookkeeper, sales tax forms have been the bane of my existence. I work with many clients who have inventory in one part of the country and sales people in another. They may sell to clients that switch back and forth from a wholesale and a retail client, depending on the transaction. I’ve found that most small businesses don’t understand sales and use tax basics. So, let’s go to tax school.
Before paying sales tax in a state/county/city you must determine Nexus.
Determining Nexus: A nexus in general means a connection. The term nexus is used in tax law to describe a situation in which a business has a “nexus” or presence in a state and is thus subject to state income taxes and to sales taxes for sales within that state.
For Sales Tax Purposes: Nexus is determined for sales tax purposes more loosely. Here are some cases in which a business might have a sales tax nexus in a state:
- If the business has a physical location in the state
- If there are resident employees working in the state (sales people!)
- If the business has property (including intangible property) in the state (inventory!)
- If there are employees who regularly solicit business in the state.
So, you may not have to pay sales tax in every place that you ship items. However, if it is determined that you meet the above (bulleted) criteria or you derive a significant economic benefit from selling in a state, the state may perform an audit and ask for sales tax retroactively.
As a bookkeeper you can see why I struggle. As tax rates changes throughout the country, I am still expected (as I should be) to file forms appropriately. I was going a little crazy… Until I found this service called AvaTax.
Now, all I have to do is set my client up with AvaTax, connect it to their Quickbooks file and Avatax takes care of the rest. Sales Tax is calculated, accrued and paid and forms are filed on time. I partnered with this service because sales tax is becoming increasingly complicated, especially if states/counties/cities are looking for new ways to generate revenue. As businesses close brick and mortars, local tax agencies are left holding the check. Washington is one of the many states that are addressing this issue head on. In June 2010, Washington adopted “economic nexus” for businesses that derive a significant economic benefit from providing products or services to Washington residents. This means that your business does not need to have a physical presence to have nexus and be subject to Washington tax. As more cities/states/counties begin to feel the economic squeeze, they are likely to follow suit.
Interested in staying compliant? Give us a call. We look forward to being your “go to” bookkeeping service.
Cristina Garza | Chief Number Cruncher
530 E. McDowell Rd., Ste 107491, Phoenix, AZ 85004
o. 480-359-6149 | f. 866-611-6989