Some of the most common ways to grow your business open up a lot of sales tax liabilities you might not have planned for when you dreamed of expanding your business. Opening a second location in another jurisdiction will do it — and you might have seen that coming. But did you know that a sales tax nexus is also created by having inventory at a fulfillment location in another state? Calculating projected sales tax liabilities can help your business stay on top of sales tax and plan for potential audits but knowing where you’re liable is the first step of the battle.
As you expand your business, you’ll need to be aware of the changes that can lead to additional sales tax liability. These questions will help you identify situations in which you might need to collect sales tax in another jurisdiction: Do you have inventory off-location? Are you tracking where salespeople are going? What about training and seminars? Are you going to trade shows? Do you own any type of asset in a state, such as a building or a warehouse? Do you use affiliate advertising? Is your business leasing property in another state? Do you use contractors or sub-contractors to do work for you? Does another location accept returns or exchanges on your behalf? Are company-owned trucks making deliveries in another state? Do you advertise on local media in another state? Do you license products, trademarks, or other property to a business in another state?
All of these items can potentially create nexus in another state. If you’ve answered “yes” to one of these questions, it’s time to check on your sales tax situation.