Top 5 Questions about Tax Management for SMB Retailers
1.) I have multiple warehouses in one state, stores in multiple states, and I ship to all 50 states and Canada. Do I need to collect taxes in all of these locations?
Retailers are required to register for, collect, and remit sales tax for states and jurisdictions in which they have nexus. Because legislation is constantly changing, it’s important to stay current and understand where your business has nexus.
2.) What constitutes nexus?
What constitutes nexus varies by state and jurisdiction so it is important to seek the advice of your trusted tax advisor. Nexus is a sufficient physical presence and can include a number of different situations such as warehouses, stores, affiliates, or even salespeople. Some of the more common nexus criteria include:
- A physical presence/location, such as a store, office, or warehouse, just to name a few
- Solicitation by company sales representatives
- Company-owned vehicles delivering tangible personal property into the jurisdiction
- Company-owned tangible personal property, such as capital equipment or inventory, stored or located in the jurisdiction
- Out-of-state seller with no in-state physical presence but regular in-state activities such as training classes held in the jurisdiction
- Tangible personal property leased or rented to someone located in the jurisdiction
- Repair or maintenance of tangible personal property located in the jurisdiction
3.) How much does an automated tax management solution cost? What are the advantages of a pay-as-you-go, consumption-based model?
Depending on the tax management solution that’s chosen, there could be annual contracts requiring usage estimates, as well as upfront implementation fees. A consumption-based solution, where customers pay only for what they use, is a good fit for an SMB retailer because customers only pay for what they need, and the solution easily adjusts as their business scales up or down.
4.) What do I need to have in place in order to implement a tax management solution for my business?
At the very least, retailers require a system that allows the organization to store a tax rate for locations of over-the-counter sales. Even better is a system that stores rates by individual inventory items, since each product sold could have distinct taxability.
5.) What are the risks of continuing to manage my sales and use tax manually?
Without an advanced, automated system in place, retailers can suffer from increased audit exposure due to:
- Incorrectly managing product taxability resulting in under- or over-collection of tax dollars
- Increased risk of over- or underpayment of taxes
- Lack of access to the most up-to-date tax rates, rules, and forms across states and jurisdictions in the U.S. and Canada
- Not collecting and maintaining exemption certificates
- Filing incorrect returns or filing returns late or with inaccuracies
For more information read 5 Steps to Simplify Sales and Use Tax for Retailers.
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