One task that you should put on your end-of-year to-do list is checking your nexus to make sure that you’re not running into trouble with sales tax. Each state determines what qualifies as nexus, which can create lots of problems when trying to determine where your business has nexus. Doing a quick review at the end of the year of what aspects of your business might create nexus can help your business stay in the clear when it comes to sales tax. The first step is to take an inventory of the sales tax nexus. We have a basic list to go through for sales tax liability triggers you can use to take a quick inventory of what your business might have that can cause sales tax nexus problems.
Go through this list item by item and think of all of the different ways your business interacts with customers and potential customers in different locations. After you’ve written down what sales tax triggers your business has, the next step is to check what sales tax nexus rules say for each state and how you might trigger sales tax. For instance, if you’ve had an affiliate program in Missouri or Maine in the last year, it is time to either pull that program or start collecting sales tax. Law changes in both states now determine that nexus is created by affiliate programs. It’s also a good idea to check things like thresholds and calculate how much room you have to grow before creating a nexus. For instance, in New York, affiliate programs can do up to $10,000 worth of business before creating a sales tax nexus. If you plan on growing marketing and affiliate programs in the coming year, plan ahead for when you need to cut them off or collect sales tax.
There are plenty of other ways you might create sales tax, such as independent contractors or trade shows. If your 2014 plans involve any of these types of nexus creators, be sure to check the rules for each state where you might have contractors or attend trade shows—business decisions like these need to plan for sales tax. Another thing to consider in your sales tax liability and nexus review is how your sales tax software handles the newly created nexus—if you’re updating your sales tax processes and need to add additional states, how much more will it cost you in your program’s features and time to set it up for payments? It might also be time to upgrade your sales tax software.