Did you know you are obligated to collect and remit sales tax where you conduct business? Have you heard of nexus and do you know what it means for your business? If the answer is no, you can be assured the taxman will explain it after your next audit. However, before you are at the mercy of the auditor, take a moment to discover how simple it is to manage nexus obligations and become sales tax compliant with Avalara's AvaTax service and its seamless integration with Intuit QuickBooks.
For tax purposes, nexus is defined as the connection a taxpayer has with the taxing state, and we consider that nexus connection when determining our obligation to collect and remit tax in states where business is conducted. However, there is a range of ways nexus is created and these rules vary from state to state. Nexus determination can be confusing, whether you are new multi-state activities or have been doing business in more than one state for years.
To begin, almost every business has to calculate, collect, report, and remit sales tax. More than likely, you are already paying taxes in the state and local jurisdictions where your business is physically located. However, what happens when you sell something across state lines? Are you required to collect sales tax? How much sales tax should you collect? And to which state should you remit the tax?
Nexus rules are established by individual states and every state defines them in uniquely. Determining exactly how a rule applies to your business is critical. To safely navigate these challenging tax rules you should consult your accountant, tax attorney, or other qualified sales tax professional to conduct a nexus study for your particular business. Making the nexus determination on your own is difficult, confusing, and can lead to problems further down the road.
Once you have determined a state where nexus exists for your business, you are required to calculate, collect, report, and remit that state's sales tax when you have a transaction in that state. Most commonly, sales taxes are remitted based on the states where your business is actually located because it is typically the physical structure of your business that creates nexus. However, there are several other scenarios that can trigger a nexus situation and these should also be considered. Here are a few of the most common scenarios:
Scenario #1: Your business has stores in multiple states. In this case, you will more than likely have sales tax obligations in each location.
Scenario #2: Nexus can be created by employing sales people who work in other states. For example, if your employees or contractors conduct any work at a customer's out-of-state location, you may have nexus there as well.
Scenario #3: Regularly attending tradeshows or advertising in other jurisdictions beyond the physical location of your business can be considered nexus in certain states.
Here are a few additional factors that can create nexus:
- Property Ownership: Owning or leasing any real or personal property in another state
- Product Delivery: Having company personnel deliver products in another state
- Product Storage: Renting or owning out-of-state storage, warehousing or drop-shipping facilities
Paying sales tax may be inevitable, but the associated hassle is not. If you're paying sales taxes in several jurisdictions, selecting a Web-service-based sales tax management solution that performs behind the scenes of your current accounting or ecommerce application to comprehensively automate the sales tax compliance function for your business can save time and protect you from missing or making late payments. The selected service should work seamlessly behind the scenes, should integrate with the existing business accounting application and/or CRM application, and must automate the entire tax compliance functions of the business.
Avalara, one of the leading providers of sales tax management services, offers a broad range of calculation and compliance solutions that eliminate the tedious work and complexities involved with calculating, reporting, returning, and remitting transactional tax. As a Silver Developer through Intuit, the AvaTax service is fully integrated with QuickBooks and is a web-service-based sales tax solution that instantly and accurately calculates sales tax for clients and provides detailed, real-time reporting and automatically generates pre-populated sales tax returns. Currently, more than 21,000 licensed AvaTax users run an average of five to seven sales tax calculation transactions through Avalara's sales tax engine every second and that number is continually growing. AvaTax comes integrated with more financial applications and serves more businesses than any other solution on the market today.
Sales tax compliance is full of complicated rules and nexus is just one aspect with several other layers that must be considered in order to be truly compliant. With more than 12,500 tax regions across North America, and with rates and boundaries constantly changing, staying on top of your nexus responsibilities can be a substantial drain to your business and carries no benefit to your bottom line. An independent study of 551 accounting and financial professionals was conducted in 2008 and roughly one third of participants estimated their organizations spent more than 2 full business days (16 hours or more) preparing and remitting sales or use tax returns every month. Seventy-two percent of the individuals surveyed indicated having been audited by one or more taxing authorities in the past, with 70 percent of those audited being within the last 3 years. Currently the average penalty amount incurred is estimated at $34,000 per each audit performed. As a result of implementing the AvaTax service with Intuit QuickBooks, you can free yourself from much of the burden of managing sales tax compliance processes and can join the thousands of Avalara clients who focus on revenue generating activities. Avalara frequently offers free Webinars on issues related to sales tax compliance; please attend our next scheduled webinar on Thursday March 5, 2009. You can register online.
Avalara is transforming the sales and use tax compliance process for businesses of all sizes by delivering advanced technology solutions that provide fast, easy, accurate, and affordable way for companies to address their statutory tax requirements. Chosen by nearly 10,000 businesses throughout the U.S., Canada and abroad, and a trusted provider of over 100 million sales tax calculations annually, Avalara is a recognized leader in web-based sales tax services and solutions. Avalara files more than 240,000 sales tax returns and remits over $10 billion in sales tax filings per year.
For more information on AvaTax's integration with Intuit QuickBooks or any other of our transactional tax solutions, please contact us at 877.780.4848 or by e-mail at [email protected].