| We all have heard or read about the plights of the | | | | nexus-creating activities: |
| states in the recent economy. Revenues from all | | | | 1. Owning or leasing property in a state. |
| sources are down and states are desperate to | | | | 2. Owning or leasing equipment in a state. |
| increase them. Virtually all states are becoming | | | | 3. Travel into a state to perform sales. |
| more aggressive in their collection efforts and | | | | 4. Travel into a state to perform services such |
| many are looking at creative new statutes or | | | | as installations, training, repair, etc, etc. |
| ways to reinterpret those already on the books. | | | | 5. Travel to trade shows in a state. |
| One prime example of these efforts is the | | | | 6. Having payroll in a state. |
| Internet. Most of the news about the Internet | | | | 7. Having agents or contractors in a state. |
| currently revolves around Amazon, with some | | | | 8. Licensing intangibles to others in a state. |
| statutes actually being dubbed the "Amazon | | | | 9. Delivery into a state in a company owned |
| Laws". However make no mistake about it; it's | | | | truck. |
| not just Amazon the states are thinking about. | | | | 10. Doing business with a bank in a state. |
| If you are selling or buying on the Internet the | | | | Let's not forget those issues that are not nexus |
| states have their eyes on you also. | | | | related. Issues like changing taxability (software |
| The reasons so many states are looking at | | | | especially), delivery methods (downloads vs hard |
| Internet sales are because of their explosive | | | | copy) and of course drop-shipping issues. Are |
| growth and the fact that sales or use taxes | | | | you responsible for the taxes on a sale someone |
| often go uncollected on these transactions. | | | | else makes? You could be. If your purchaser is |
| Experts estimate that the uncollected taxes for | | | | not registered in a state and you have nexus in |
| these transactions will total $18 billion dollars this | | | | that state you may be liable. |
| year and predict that by 2012 the number will | | | | If you are beginning to wonder if you need to |
| grow to $23 billion. The cumulative amounts for | | | | take another look at how you are approaching |
| the period of 2009-2012 could reach $55 billion | | | | these issues pat yourself on the back. All too |
| dollars. It's no wonder the states have their eyes | | | | often I speak to very smart people at companies |
| on the Internet; capturing these uncollected taxes | | | | of all sizes and types, who work at all levels of |
| would go a long way to closing their budget gaps. | | | | the organization that I believe are much too |
| In their pursuit of this Internet treasure the | | | | complacent. They assume that if their system |
| states are taking a number of different | | | | has worked up to this point why change it? |
| approaches. The states easiest to follow are | | | | Some of them are right. They stay on top of |
| those that have passed new statutes. There are | | | | the ever-changing environment and update their |
| currently 3 of these states that have passed | | | | policies continuously. Others find out the hard way |
| "Amazon Laws"; NY, NC and RI. One of the | | | | (usually in a Sales/Use Tax Audit), that just |
| major components of all three of these statues is | | | | because it worked in the past doesn't mean it's |
| what is called "Click-Through Nexus". This nexus | | | | going to work now. |
| occurs when the seller enters into an agreement | | | | Andy Johnson, a founding partner at Peisner |
| with an instate resident, where the resident is | | | | Johnson & Company, believes that, "The |
| compensated for referring customers directly or | | | | greatest tragedy when it comes to sales tax is |
| indirectly to the seller. One form of this is an | | | | neglecting to collect sales tax on a taxable item |
| affiliate program where a potential customer clicks | | | | at the point of sale, only to have it come out of |
| on a resident's link and is redirected to the seller's | | | | your pocket later. " Because unlike an income tax |
| website. The laws are currently being challenged in | | | | which comes out of your pocket no matter when |
| court and many tax professionals have taken a | | | | you realize it, sales tax that would have been paid |
| wait-and-see approach. | | | | willingly (if not grudgingly) by your customer at |
| While the professionals may be waiting, the states | | | | the time of the sale, ends up coming out of your |
| are not. According to BNA's 2010 Survey of | | | | pocket 3 to 5 years later. And, don't forget to |
| State Tax Departments,14 additional states | | | | add the penalty and interest insult to the injury. |
| believe that their existing statutes allow them to | | | | Can you afford not to be compliant? |
| pursue taxes through this "click-through nexus". | | | | Ok you've started to wonder, now what do you |
| The approach of these states is much more | | | | do. Here are some suggested actions: |
| stealthy and without the information contained in | | | | 1. Educate yourself - Start with charts and |
| the BNA survey, many would be hearing about | | | | matrices, attend webinars, contact the states. |
| this the first time through an audit.The states | | | | 2. Ask questions – Of your staff, your |
| referenced in the BNA survey are: Arizona, the | | | | accountants, everyone. You can never ask |
| District of Columbia, Florida, Iowa, Maryland, | | | | enough questions. |
| Missouri, Nevada, New Mexico, North Dakota, | | | | 3. Evaluate - Don't assume your accountants or |
| Pennsylvania, South Dakota, Tennessee, Texas, | | | | staff are up-to-date. They usually are |
| and Washington. | | | | multi-tasking. |
| In addition to "Click-Through Nexus" many of the | | | | 4. Consult an expert – There are some |
| states are looking at (or have already passed in | | | | excellent service providers that focus on issues |
| the case of Colorado & Oklahoma) "Sales | | | | like these. |
| & Use Tax Notice and Reporting | | | | 5. Train your people – Knowledge is power. |
| Requirements" for transactions where sales taxes | | | | Empowered employees can help prevent |
| are not collected. Quite simply states are requiring | | | | problems. |
| sellers without nexus to inform purchasers that | | | | There are a few good firms that can help you |
| tax is due on individual transactions as well as | | | | educate yourself or provide additional support as |
| provide year end summaries with instructions on | | | | needed. I am partial to my employer Peisner |
| how the taxes should be paid. There are also | | | | Johnson & Company. We offer many free |
| requirements for reporting these sales to the | | | | services designed to make your life easier. One of |
| state and provisions for penalties for noncompliant | | | | those free services is that we will provide you |
| sellers. | | | | with a chart or matrix on just about any topic |
| If the new statutes were not enough, states are | | | | you would like. We also offer a free service called |
| aggressively searching for companies that have | | | | quick questions. If you have questions that we |
| "old-fashioned nexus". This nexus is caused by | | | | can answer without the need for research we will |
| the usual myriad of ever-evolving activities whose | | | | do so free of charge. |
| importance in creating nexus can vary from state | | | | There are currently so many issues effecting |
| to state. Most of these activities are not directly | | | | Internet sales it is hard to cover them all or in |
| related to the Internet and are conducted by | | | | great detail in a single article like this. It was my |
| other parts of your company, but could impact | | | | intention to alert you to as many of these issues |
| the sales tax aspect of your Internet business | | | | as I could. If you have any questions or would like |
| anyway. These activities are too many to list | | | | additional information please let me know. I can be |
| entirely but here is a quick list of 10 potential | | | | reached at 800-940-9433 ext. |