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Exploring what's new, relevant and upcoming in the ever-changing world of sales tax.

Gross Sales May Cause Sales Tax Surprises

Sales Tax DataLINK - Wednesday, February 06, 2019

States no longer have to limit their sales tax collection requirements to sellers with physical nexus in their state. Since the Supreme Court overturned Quill last summer,  states can require companies to collect and pay sales tax because of "economic nexus" or "cookie nexus" if they feel like it.

Most states feel like it. As states add new sales tax regulations, though, something interesting is happening in some states. And it's not interesting in a good way, either.

Threshold

States are exempting companies that don't reach a certain threshold in sales. $250,000 a year or 200 transactions, for example, is the threshold in Georgia. The average e-commerce basket size in the US is about $82.00. So an e-commerce seller who does 200 of these average transactions in the state of Georgia could be required to comply with sales taxes in Georgia even though he or she had just over $16,000 in revenue.

This threshold, which theoretically should exempt small mom and pop companies, is affected by a loophole in some states. They're counting gross revenue, not just taxable transactions. That means that a company with $200,000 in wholesale sales in Georgia and just $50,000 in direct to consumer sales could be surprised with a sales tax bill. Theoretically, in fact, just one taxable transaction could do it. If you are a manufacturer with a wholesale presence in a state and you sell a replacement part direct to one consumer, you could find yourself required to register and comply with sales tax regulations in that state.

The solution

In real life, Georgia isn't going to send you a bill. They might send you an auditor, though. Once the new laws settle in, states can up their revenue significantly by going after companies with sales and use tax audits.

Still thinking about real life, it makes sense for companies with any direct to consumer sales to go ahead and register to collect sales tax in every state with any sales. It might be simplest to get set up now in every state, instead of complying one by one as the situation arises. Living in a constant state of emergency has costs.

Fortunately, SalesTaxDataLINK has sales tax services. We can take the entire issue off your shoulders and leave you free to focus on mission-critical tasks. Call us to discuss your needs.