There are quite a few terms in sales tax that sound funny and don’t make much sense to people outside the field. “Situs” is certainly one of them.
Many people confuse situs with nexus but they are different. Understanding the difference can help give you a better understanding of your sales tax responsibilities and where your company falls for liabilities.
What is situs?
“Situs” means the place to which a piece of taxable property belongs. To dig a bit deeper into the term, let’s take an example. If a customer at a Middleboro, Massachusetts, bookstore buys a paperback book, which is taxable, the situs is in the tax jurisdiction of Middleboro, Massachusetts.
For sales tax filing, it’s important to know the exact situs so the correct rate can be calculated. In Massachusetts, there is only one sales tax rate and that makes things a bit easier. However, if the book was purchased at a bookstore in Arkansas, the exact location where the purchase occurred matters immensely.
Without the right situs, the sales tax rate will be wrong.
There’s always a bit of confusion when it comes to situs and nexus because they’re similar. Nexus means the connection of an entity to a tax jurisdiction. In the case of the bookstore, the nexus is the physical presence of the brick-and-mortar store in the location. The situs is the tax jurisdiction of the nexus.
What about remote sellers?
Things get complex when it comes to online transactions because the situs changes.
In internet and remote sales, the situs can change depending on the state’s laws. For instance, if an individual in Massachusetts bought a book from an online merchant in Arkansas that had no nexus in Massachusetts, the online merchant wouldn’t charge sales tax because the situs was in Massachusetts.
Since Wayfair, a remote seller can have nexus in any state — if they don’t have physical nexus, they may still have economic nexus. In that case, they would need to charge sales tax using the rate for Massachusetts because the situs was in Massachusetts.
It can get complicated quickly if you’re selling online and also at a brick-and-mortar store. Having technology that is made to work with these complex definitions and rules is important to get your sales tax right all the time. We can help, so call 479-715-4275 today to see how our software can make a difference in your business.