A Guide to Registering for Sales or Use Tax.

When to register for sales or use tax 

Nexus is the link or connection with a state, which must be present before a state can require you to do anything. Once it has been determined where you have this link or connection called nexus, it is time to register in that state or locality for the different taxes; these can include sales tax, income tax, and payroll taxes. However, it is important to remember that each tax has its own nexus requirements. Nexus is not one size fits all when it comes to different taxes.  

When and Where Should we register? 

Sellers should register for sales or use tax whenever there is nexus, what they sell is taxable, a marketplace is not collecting, and it makes sense. In other words, are the costs of registering and filing sales tax going to exceed the amount of tax penalty and interest if you don’t register? 

Each state has its own set of rules as to what is taxable. However, a few things are taxable by default in each state, such as tangible personal property, unless there is an exemption. Exemptions may be by item, use, entity, or even by project. We have written an entire blog post on exemptions and certificates. You can read it here.

Services are not generally taxable by default. Each state determines how they want to tax services. Some states such as HI, KY, NM, SD, & WV. Tax most services, while others tax very few. However, all states, with a state sales tax, tax at least some services. 

So a seller should register whenever and wherever. Sellers should register for sales or use tax whenever there is nexus, what they sell is taxable, a marketplace is not collecting, and it makes sense.

Why is it important to register when you have nexus? 

Once a business has nexus it is generally required to collect and remit sales and use tax. If the business does not collect the tax from the customer at the point of sale, the tax can become the seller’s liability with the added insult of penalty and interest. This can add up over time, with penalty and interest easily reaching over 50% of the back tax or more. We have seen companies put out of business when not collecting tax properly, especially when more than one state finds a company.

So it is important to be aware of your constantly changing nexus footprint and getting registered when you need to. Remember that nexus can be created by just selling above a threshold into a state, and physical presence is still alive and well. We see the use of third parties being the least understood source of physical nexus and, therefore, the greatest undetected liability.

If you have past liability, you may need more than a simple registration. There are programs to mitigate past liabilities, like a VDA, which you can read about here.

We can help if you need to determine whether you have a responsibility to register not only for sales or use tax, but payroll taxes, income taxes, and any other state-related registrations. We can also perform the registrations for you. Please reach out to us at salestaxandmore.com or email us at contact@salestaxandmore.com if you would like more information about our services.

By: Jayci Trujillo

This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.