There is still a lot of misinformation about this subject on the Internet, so let’s set the record straight!
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Today’s topic, sales tax for eCommerce stores has been a point of confusion for so many people over the last few years and I still see some people giving the wrong answer to this question on the internet. So let’s clarify.
Back in the day, before Wayfair V. South Dakota, you were only required to collect sales tax in the states where you had a physical presence, otherwise known as nexus. So if you didn’t have any employees, a warehouse, or any business presence in a particular state you didn’t have to collect sales tax for that state.
But that all changed after that court case.
Now each state has the authority to require you to collect sales tax and it’s based on economic nexus, not physical nexus. The threshold for economic nexus is also set by the state. In some economic nexus kicks in at $1 and for others it’s tens of thousands of dollars. And of course, these laws are being updated all the time.
Honestly, it’s quite a nightmare for eCommerce businesses especially as your business grows and is required to pay sales tax in more and more states. And because different states have different rules you also have to keep up with nuances like who charges taxes on shipping fees and who has different tax rates based on the price of the product. I’m looking at you Kentucky and NY.
The good news is you don’t have to figure it all out on your own, there are apps for that. The most popular being TaxJar. I’ll stick my link in the show notes for you so you can check it out.
They have a range of services available from letting you know when it’s time to start collecting sales tax in a particular state to even remitting those taxes for you. If there’s anything you’ll want to systematize and take advantage of technology for in your business, this is definitely one of them.