Understanding the sales tax rate sourcing provisions for states in which you have sales tax nexus is critical in determining the correct sales tax on a transaction. If you don’t, you could end up charging and collecting the wrong sales tax rate.
In general, states employ two sourcing methods, origin and destination. In states that have origin based tax rate sourcing provisions, the activities that create sales tax nexus, as well as changes in your company’s activities in the origin state, may be an important factor in determining the sales tax you should be charging in that state.
The sales tax rate may be affected by two considerations:
- Whether your company has nexus in the state as the result of having one or more locations in the state.
- Whether nexus arises from the mere presence of sales activities in the state.
If you are selling into an origin-based sales tax state, it is critical that you regularly review your company’s, as well as your affiliated companies’, activities in the state. Failure to do so could result in paying the wrong sales tax rate in one or more origin states.
Periodic nexus reviews of your company and its affiliates’ activities are cost effective ways to identify this potentially expensive sales tax issue.
More details on this issue and examples are available at the Salt Strategies blog, in an entry written by Joseph A. Pizzimenti and Timothy Reiter.
About the author:
Joseph A. Pizzimenti, Esq., is a tax director at Margolin, Winer & Evens LLP, an accounting and business advisory firm with offices in Long Island and New York City.