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There is so much to learn about sales tax. When I owned my online boutique store and was shipping products to people in my home state, and outside of my home state, I was constantly doing research to see what was changing as far as sales tax filing and other aspects of doing business.

People often complain about the sales tax that they are charged when purchasing goods online and in stores, but do most people really understand sales tax?

What is Sales Tax?

According to Wikipedia: A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase. When a tax on goods or services is paid to a governing body directly by a consumer, it is usually called a use tax. Often laws provide for the exemption of certain goods or services from sales and use tax.

In the past, companies would only collect sales tax in the state that they were doing business. Things have changed, and there was the Wayfair Nexus case, that really brought forth a lot of these changes. During this case the Supreme Court determined that an out-of-state seller can have economic presence in a state where it has no physical presence- and can be held legally accountable for collecting tax.

What is a Tax Nexus?

Nexus means a connection. The term nexus is referring to a situation where a business has a “nexus” or a tax presence in a particular state. The nexus is the connection between a state and a business that must collect or pay the tax.

So, why do the states care?

It’s simple, companies now make a good amount of their money selling goods online, shipping out of state, and the states want to make sure that they are receiving their tax money. For example: States set their economic nexus triggers based on the in-state sales, revenue or both. Let’s take Alabama for instance. The threshold in Alabama is $250,000 per year in sales in the state. Colorado has a threshold of more than $100,000 in sales or 200 or more separate transactions. Some states do not have a filing requirement if the seller is not making retail sales of tangible personal property, while other states take the opposite approach.

There are now so many different things that a company needs to keep in mind, such as …do you have employees that are doing sales traveling outside of the state? Maybe you have a sales rep that travels to different states doing business for your company? What about an affiliate that does not live in your business state? Having warehouses in other states can also be another thing looked at. You will also need to be mindful of employees setting up at trade shows in other states. These are all things to consider when doing business.

If you have a business of your own, or are thinking of starting a business, you may want to research the sales tax regulations before getting started.