Sales tax nexus has been an issue for manufacturers for a long time and the bottom line is if sales are made in a state where your client has nexus, sales tax needs to be collected from those in-state customers; otherwise it could come out of your client’s pockets.
What's New About Sales Tax Nexus?
It seems almost daily, states are creating new state legislation on nexus-creating activities. The Supreme Court is anxiously awaiting a case to overturn Quill, which is the law that defines “physical presence.” And there have been numerous attempts at imposing federal nexus legislation.
Moreover, states are more aggressively seeking out companies - including manufacturers - that are suspected of owing uncollected sales taxes.
Should Manufacturers Be Concerned?
With tight budgets, state revenue departments are aggressively looking for companies that haven't been, but should be, collecting tax in their states. And when they find them, it can be a big hit.
So how are companies identified?
by audits of their customers
by their trucks on the road
by information on their website
by other taxes filed in a state
Now is the time to take a look at potential nexus-creating activities. Why should your manufacturing clients risk being forced to take a hit on their P&L and remit sales tax to the state when they should have been collecting it from their customers?
How Manufacturing Clients Can Address Nexus
If you suspect your client or their customers have nexus and are not registered in a state, evaluate their tax exposure before registering in that state in the following ways:
Determine if a voluntary disclosure agreement (VDA) should be pursued in a state where tax exposure is high.
Negotiate a VDA on your client’s behalf, the look-back period and penalties may be reduced, saving your client significant money.
Teach key employees, such as sales and marketing, operations, storage and delivery, and human resources, to understand nexus-creating activities.
Staying on top of sales tax nexus can save manufacturers thousands of dollars. Address the issue now before a state (or states) knocks on their door and turns an oversight into a financial headache.
This article originally appeared on the Cherry Bekaert blog.
Lauren is a Principal and National Leader of Sales & Use Tax at Cherry Bekaert. She oversees the entire sales & use tax team and has more than 25 years of experience working with companies to manage their sales and use tax processes.