Sales Tax Glossary: Situs

There are quite a few terms in sales tax that sound funny and don’t make much sense to people outside the field, and “situs” is certainly one of them. Many people confuse situs with nexus but they are different. Understanding the difference can help give you a better understanding of your sales tax responsibilities and where your company falls for liabilities. “Situs” means the place to which a piece of taxable property belongs. To dig a bit deeper into the erm, let’s take an example. If a customer at a Middleboro, Massachusetts bookstore buys a paperback book, which is taxable, the situs is in the tax jurisdiction of Middleboro, Massachusetts.

For sales tax filing, it’s important to know the exact situs so the correct rate can be calculated. In Massachusetts there is only one sales tax rate and that makes things a bit easier. However, if the book was purchased at a bookstore in Arkansas, the exact location where the purchase occurred matters immensely. Without the right situs, the sales tax rate will be wrong. There’s always a bit of confusion when it comes to situs and nexus because they’re similar. Nexus means the connection of an entity to a tax jurisdiction. In the case of the bookstore, the nexus is the physical presence of the brick and mortar store in the location. The situs is the tax jurisdiction of the nexus. Things get complex when it comes to online transactions because the situs changes.

In internet and remote sales, the situs can change depending on the state’s laws. For instance, if an individual in Massachusetts bought a book from an online merchant that had no nexus in Massachusetts, the online merchant wouldn’t charge sales tax because the situs was in Massachusetts. In states where the sales tax is origin-based instead of destination-based, such as Arizona, the sales tax situs would be in the online merchant’s location, not that of the individual in Arizona who is purchasing the book. It can get complicated quickly if you’re selling online and also at a brick and mortar store. Having technology that is made to work with these complex definitions and rules is important to getting your sales tax right all the time. We can help, so sign up today for a free evaluation to see how our software can make a difference in your business.

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