Sales Tax Discussion
Sales Tax Background:
Sales tax reporting is quite complex in many states. A company must report sales or use tax to all states in which they have Nexus. Sales tax rates are based on the zip code to which the sales are shipped, even though there isn't one state that lists tax rates by zip code, thus complicating the process.
Since sales tax reporting is a complex and time consuming process, the reason to automate is to help Companies perform the task in a quick, accurate and efficient manner, reducing the time and effort required.
Unfortunately, Nexus is defined slightly differently in for each state, but in general if a company has any one of the following in a state, they generally have Nexus in the state and must report either sales or use tax to that state. The criteria are:
1. The company has an office in the state;
2. The company has an employee living in the state; or
3. The company has inventory in the state.
In some states, Nexus is attained through a much lower level of physical presence in the state and you would need to check each state to determine whether your company has Nexus.
Sales Tax Information Collection Background:
In general, if a Company is selling online through their own website to the end user, the shopping cart that they use provides sales tax by ship location and reporting for those sales, so in general there is no need for our service for Companies that ONLY sell this way.
In California, Connecticut, Florida and Hawaii, drop-shipments to an end consumer by a wholesaler or manufacturer who has Nexus in these states are reportable as taxable events and sales or use tax is required to be remitted on the drop shipments. Each of these states has their own rules on how to determine the taxable amount.
If the retailer has Nexus in the state, then the retailer is required to remit the sales tax.
Fulfillment by Amazon (FBA) Sales:
Amazon.com has a nice feature if they don't buy and stock a customer's products. What they do is to fulfill customer's orders with their FBA service. However there is a major tax consequence with this service as the customer attains Nexus in the states in which their products are being inventoried.
Other Non-Standard Sales:
All other taxable sales are reportable to states in which a company has Nexus. In businesses we've helped run these include; retail sales to employees and sales reps and product given away, which is deemed to be sold at cost.
There are other Companies providing sales tax automation such as Avalara, but their systems aren’t up to the task of automating everything that’s going through your financial statements. They do a great job with tracking and paying company web sales but don’t have the process or capability to address Drop-Ship, FBA sales or Other Non-Standard sales. The system that we've created address all these issues.
While you can receive adequate Sales Tax Automation services from other sources, we believe that our product provides more accurate and timely information in addition to being very cost effective. Please call or send us an email for any inquires that you may have.