Sales tax laws aren’t getting any easier to navigate. Most states have unique economic thresholds that determine whether a business needs to file state sales tax. These thresholds are ever-changing, and the filing process and other related procedures can vary by state. All these factors make it difficult for business owners to stay compliant.
For example, is your business aware of Minnesota’s upcoming retail delivery fee?
The state’s Department of Revenue recently announced it’s rolling out a new retail delivery fee effective July 1, 2024. After this date, a 50-cent fee will be imposed on specific retail delivery transactions where charges for clothing and tangible personal property subject to sales tax are equal to or exceed $100. For additional information about the fee, including retailer exclusions, tax implications, reporting requirements, item exemptions and more, visit the Minnesota Department of Revenue’s website.
As a business owner, it’s crucial to stay up to date on the latest tax changes, because, ultimately, it’s your responsibility to know your business’s tax obligations and whether you’ve established sales tax nexus in a given state. If you’re unfamiliar with sales tax nexus, it’s when a business’s presence within a state has met certain criteria for being subject to sales tax in that state. There are many factors that determine whether your business has established sales tax nexus in a particular state — here are just a few:
- Maintaining the presence of an office building, storefront, home office or other location
- Having team members working out of a state
- Operating a storage building or warehouse
- Storing inventory at a warehouse or building
- Conducting short-term business in the state, such as at a convention or fair
- Being an e-commerce retailer (some states have a click-through nexus, in which e-commerce retailers are taxed for being affiliated with another state even without a physical presence)
Another indirect tax our team has been assisting business owners with is the franchise tax being applied to businesses by several states (including California, New York and Illinois, to name a few). Franchise tax law in Texas, which is contrary to a long-standing federal statute known as Public Law 86-272, states that for accounting periods ending before 2019, an out-of-state business is required to have a physical presence in the state to have revised franchise tax nexus.
For federal income tax accounting periods ending in 2019 or later, a foreign taxable entity will have franchise tax nexus with Texas if, during the period, it had gross receipts from business done in Texas of $500,000 or more. This tax law creates nexus even if the entity has no physical presence in the state. Texas was the first state to roll out a law like this, and we’re starting to see other states follow suit.
The above examples are just the tip of the iceberg for the different types of criteria states have for establishing nexus, and they illustrate why tax filing is often a stressful, convoluted process for businesses.
If your business operates in multiple states or has e-commerce, a helpful step you can take to simplify the filing process is conducting a nexus study. A nexus study assesses your business activities within states and identifies whether your business has a tax obligation. It can also help you address any potential compliance concerns, identify savings opportunities and better understand your tax liabilities so that you can plan for them accordingly.
In addition to performing a nexus study, you may want to consider partnering with a tax advisor who can help you take action based off the study results. Managing your tax filing procedures is a complicated endeavor, and without help, it can feel nearly impossible. Advisors can provide the resources, tools and expertise to instill confidence in your filing processes and help your operations remain compliant, regardless of how tax laws and nexus thresholds change.
Creative Planning Business Services works with clients every day on their sales tax filings so that they can focus on other business activities. Before we partner with you to address your sales tax needs, you must first take our nexus study so that our team fully understands your sales tax obligations. You can check out more details on the study and request yours here.
If you have additional questions regarding sales tax compliance and how our services can help, contact us today; one of our team members will be happy to assist you.
