Between internal changes in your business and external changes in the form of changing nexus laws in the states where you do business, knowing which states you need to collect sales tax in can be a real challenge. But with sales tax audits on the rise and an increasingly complex sales tax landscape, it's more important than ever to properly manage your nexus status in order to minimize your risk of a costly and time consuming negative audit.
When it comes to sales and use tax, the term nexus refers to a link or connection between a business and a state. If that link is significant enough, as defined by the state, then the business is said to have nexus in that state. Nexus can be created by a number of conditions above and beyond a typical brick-and-mortar presence, including hiring remote employees, delivering and/or installing products, affiliate relationships and more.
Businesses need to be proactive and diligent about keeping up with their nexus status. When moving into new states, it is wise to familiarize yourself with the laws of that state. You should also keep on top of those laws on an ongoing basis because while you may not meet their nexus criteria today, changes in either your business or in their nexus criteria can put you in a situation a non-compliance and subject you to the risk of fines and penalties from a negative audit.
Here are some pointers to help you avoid the pitfalls of nexus:
- Respect Nexus. If you're found by a state to have nexus and you haven't been filing, you can be subject to years of back taxes, penalties and interest.
- Lead, Don't Follow. Even if your competitors aren't charging tax, two wrongs don't make a right!
- Keep an eye out for internal changes that could create nexus. Educate your employees on what to look for and the importance of recognizing a nexus situation.
- Protect Yourself. If you're found to be non-compliant, there are steps you can take. Look for a voluntary disclosure agreement or amnesty program before stepping forward to reduce your historic liabliity.
For more on these and other tips to protect yourself when doing business in multiple states, download our free whitepaper: Top Ten Nexus Survival Tips.
If you have questions about nexus or about sales tax management in general, Oasis Solutions Group can help. We've partnered with sales tax experts at Avalara to provide you with professional sales tax services (including nexus studies) as well as sales tax automation tools that integrate with your existing ERP and/or Ecommerce solutions. Contact us to learn more.