The biggest tax challenge for business owners over the next few years isn’t going to come from the IRS. It’s going to come from states. You might find yourself suddenly subject to tax from a state you don’t even have an office in. How can that be possible?
If you have a sale or fulfill a sale in a state in which you have nexus, you might end up with a major state tax issue if you’re not careful.
There are two potential tax issues with outside states: sales tax and state income or gross receipts tax.
Today, we’re going to talk just about sales tax. The standard is lower for sales tax nexus. That means you’re much more likely to be responsible for collecting and paying sales tax. And if you don’t collect the sales tax from your customers, that doesn’t matter. You’re still going to have to pay the sales tax.
First, let’s look at what nexus is. It’s a legal term that denotes you have some kind of footprint in a state. I might have a business that is based out of Nevada, but have a nexus footprint in Colorado. So, don’t assume you don’t have a nexus footprint in a state just because you don’t have a building there.
Here are 9 questions to consider regarding your nexus:
When it comes to determining the nexus of your business, start by answering these questions:
(1) Where do you live? If the business has multiple owners, where do they live?
(2) Where is the work being done?
(3) Where is your business inventory stored?
(4) Where does your business inventory ship from?
(5) Where are your website servers located?
(6) Where do your customers or clients live?
(7) Where are your employees or independent contractors located?
(8) Where are sales people (including affiliates) located?
(9) Where do you give presentations or hold live events
If you answered with more than one state in any of these questions, you quite likely have multiple nexus issues.
I’m going to be talking much more in detail about this at my November 7, 2009 seminar “Smart Business: Make More Money, Pay Less Tax in 2009”. Go to Smart Business Seminar to sign up today!