Congratulations! Your business is growing! New products, new sales channels, new marketing efforts … and new tax obligations. In the excitement of new growth, you might miss new obligations—known as nexus—on sales and use tax.
While tax laws can be complex, there are four typical growth areas you certainly want to keep an eye on as relates to potential sales tax implications. Let’s take a look.
Expanded Product Line
Few things are more exciting than launching a new product. But, even if the products are similar to what you already offer, they may be taxed completely differently. Even updating a product can change how it is taxed. Something as simple as moving from hard copies to digital downloads can change the taxation, even if the product itself hasn’t changed. Taxes vary by state, as well. For instance, those digital downloads may be taxed by one state and not by another. Before you officially launch a new product, or even a new way of packaging an existing one, be sure to research the different tax obligations and update your tax reporting software accordingly.
A New Sales Space
Perhaps your growth is more of the cyber sort and you’re opening your first ecommerce site. Some online stores may choose to create physical pop-up locations for a holiday season. Once again, state tax laws will come into play. Online retailers have a much farther reach than brick-and-mortar locations. Be sure your systems are set to calculate tax appropriately for the state the purchaser is in. Likewise, if you are setting up your first physical location, how will you handle tax refunds if someone returns an online order in store? It’s best to solve these potential pitfalls before you open your new set of doors, be that physically or virtually.
A lot of tax laws are about location, location, location. Sometimes you don’t even need to be staying in a location long term. Just having a tradeshow booth in a different state than your headquarters and selling product or services at that booth means you’ve created a nexus for your company in that “new” location. Based in Minnesota, but exhibiting and selling in Boston? You’ll need to collect sales tax for Massachusetts. Even running an advertising campaign targeting another state may affect your taxation for that state. Run regular nexus studies each time you’re planning a new go-to-market effort to ensure your tax system is set up properly to handle.
With new growth, you may find yourself needing to involve a third-party logistics provider, a fulfillment center, or a drop shipper. These groups assist with a variety of steps, including storing goods, order pick and pack, inventory, and shipping. Agreements with these groups creates—you guessed it—new sales tax obligations, especially considering that several of your new fulfillment warehouse partners may be located across the country. Storing goods with them creates a nexus in that state. Be sure you know the location of all your goods, so you can account for all these tax obligations within your system.
Get Your Tax System on Board
No matter how your business is growing, it’s smart to get your tax system on board with the new growth as well to circumvent potential issues in the future. Systems such as Avalara will integrate tax information into your Sage or Acumatica ERP, ensuring that the right taxes are charged to the right customers in the right states.
Is it time to rethink sales tax in your organization? Accounting Systems Incorporated (ASI) has been providing businesses with software services and support since 1986. If you’re adding new tax software for the first time or need a system that can better handle your growth needs, we can help you get what you need. Contact ASI online or call us at 830-252-6154.