Sales tax in the United States is paid by the consumer but must be collected by the seller and remitted to the state by any company that has nexus in that state. For many years, nexus was defined by physical presence: owning a warehouse in the state, for example, or having a sales rep living there. In 2018, the Supreme Court ruled that states could make their own, new definitions of nexus and that states could require remote sellers to collect sales tax on e-commerce sales.
Every state that collects sales tax now has a law of this kind. Most set a threshold, requiring a company that sells $100,000 in their state in one year to collect and remit sales tax on all their sales. This is economic nexus; the company is understood to have an economic presence in the state even if they don’t have a physical presence.
A manufacturer in Iceland that sells $100,000 worth of goods to consumers in Arkansas, or has 200 transactions, must collect and remit sales tax.
It’s not that simple
For one thing, a manufacturer in Iceland might be surprised to have 200 transactions in Arkansas. If they reach their 200th transaction in October, they might not have collected sales taxes on the first 199.
They must also register to collect sales tax in every state where they end up collecting those taxes. This has to be done before they collect any sales tax. A sudden surge of orders from Arkansas might catch that Icelandic company by surprise. They can’t just begin collecting sales tax. They have to register first.
What’s more, every city and county can have a different sales tax rate. Every state will certainly have a different rate from the states around it. And rules on taxability can be different in each state. Our hypothetical Icelandic company almost certainly does not know which of their products will be taxable in each state, nor the tax rates in each county and city in that state.
What’s the solution?
We can easily imagine our Icelandic manufacturer looking with horror at the slew of Arkansas orders that could have been an exciting development if it weren’t for the sales tax.
We offer software that makes the entire process easier and more manageable.
In a case like this, however, it makes a lot more sense to outsource the process to Sales Tax DataLINK. With our complete services, we can register your company and take care of the entire process for you.
Call 479-715-4275 to learn more.
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