Retail sales: Know your Nexus

Q. I have an e-commerce website; what is my sales tax exposure?

A. The general rule used to be you have to collect and remit sales tax in the states you have a physical location or Nexus. What is nexus? It's a connection between how and where you do business in a particular state. It could be a physical office, it could be a remote office, it could be where your sales reps live. But for the most part it was based on where your business had a physical presence, whether it be a location or agents. Unfortunately, there is no shared definition among the 50 states and the definition and the rules are changing often.

In a recent court decision, South Dakota vs. Wayfair, the courts basically eliminated the physical presence rule. Why? Primarily due to states losing revenue from untaxed Internet sales. Think about it, you used to buy something online and for the most part never paid sales tax because the seller did not physically exist in your state. South Dakota vs. Wayfair is an attempt to get every online transaction, regardless of where the seller and buyer is physically located to become a taxed transaction. In most states, you will be subject to collecting, filing and remitting sales tax once you meet a threshold set by each state.

This has placed an undue burden on many online retailers, who may be spending tens of thousands of dollars to become compliant. This brief article is not intended to provide professional advice, but merely bring sales tax considerations to your attention. My recommendation is to check with a qualified accounting or legal professional to avoid getting audited. I also recommend you look into sales tax services that are connected to your shopping cart software to see if those services are part of your subscription service.

Kamal Haddad is the founder and CEO of Health Mobius LLC. Reach him at khaddad@healthmobius.com.