Business clients usually understand sales tax obligations in their home state, but they may be unaware of how easy it can be to trigger one in another. Trade shows are a perfect example.
If a representative from your business clients attends or participates in a trade show in another state, they could be at risk for establishing a sales tax obligation in that state.
There’s been a great deal of emphasis lately on sales tax economic nexus, which is established when a business with no physical presence in a state is required to collect that state’s sales tax because of its economic activity in the state. Indeed, economic nexus has overshadowed the ways a physical presence in a state can lead to a sales tax collection obligation. Yet economic nexus* has nothing to do with physical presence sales tax nexus.
Those of us who breathe and dream sales tax may take the physical presence rule for granted, but we shouldn’t, particularly when it comes to trade show attendance.
There are three essential questions your clients need to consider when trade shows are part of their business model:
1. How much time do you spend at trade shows in other states?
The amount of time you spend in another state can be the deciding factor on whether you establish sales tax nexus in that state.
For example, you generally won’t be liable for sales tax in California for trade show attendance unless:
• You’re in the state solely to engage in convention or trade show activities;
• You or your representatives engage in convention and trade show activities for more than 15 days in California during any 12-month period; and
• You derive more than $100,000 of net income from convention or trade show activities during the prior calendar year.
The rule is different in Illinois. There, an out-of-state retailer may have to register to do business in the state if that retailer:
• Attends more than two trade shows in Illinois during any calendar year;
• Is physically present during those trade shows for more than eight days during any calendar year; and
• Has combined gross receipts from sales made during Illinois trade shows subject to Retailers’ Occupation Tax in excess of $10,000 during any single calendar year.
Rules and laws can change, too. Prior to July 1, 2016, attendance at just one trade show in Washington state could establish sales tax nexus for an out-of-state business. The law was changed to allow exhibitors to participate in a single qualifying trade show per calendar year without triggering physical presence nexus.
2. Do you make sales at trade shows?
Perhaps not surprisingly, one of the most important things to consider when trying to determine if trade show activity will trigger sales tax nexus is sales.
Connecticut law requires businesses to obtain a sales and use tax permit if they’ll be selling at a trade show or other event, “even if you will only be making sales for one day.” Likewise, having an employee or representative deliver, sell, or take orders for table items or services during a trade show or conference in Texas can establish sales tax nexus — though the Lone Star State may make an exception for occasional sales by businesses that don’t normally sell taxable items.
In Florida, an exhibitor who displays taxable property or services at a trade show or similar event must register as a dealer and collect and report sales tax on those sales if the trade show agreement authorizes the exhibitor to make retail or mail order sales of taxable property or services in Florida. However, if the trade show agreement prohibits the sale of taxable property or services (in writing!) or limits them to sales for resale (in writing!), registration isn’t necessary.
Massachusetts prohibits event promoters from allowing anyone to display for sale or sell taxable property without first registering as a vendor and properly displaying the certificate of registration. In Minnesota, operators must have proof that participants are registered to collect Minnesota sales tax, or have a written statement from the seller that no taxable items are being sold.
3. Does trade show attendance lead to future sales?
Even taking orders at a trade show, or establishing a contact that leads to future sales can lead to a sales tax collection obligation.
For example, while Illinois allows safe harbor for certain trade-show attendees (described above), a business that hosts a booth, displays products, answers questions, and collects orders for products at a trade show is liable for tax on those sales even if the sales aren’t finalized or fulfilled until after the trade show.
In Massachusetts, vendors not otherwise required to collect sales tax trigger sales tax nexus if they solicit orders at trade shows in the commonwealth for more than three days in one year.
Don’t be caught unawares — pleading ignorance rarely persuades tax authorities to forgive errors. State tax authorities consider trade show activity: It frequently comes up on their questionnaires.
If you plan to attend or participate in a trade show in another state, ask the state tax authority or a trusted tax advisor about your exposure to sales tax nexus.
Automating sales tax compliance is another good way to minimize your sales tax risk in other states. Learn more.
*The focus on economic nexus is understandable: States used to be prohibited from imposing a sales tax collection obligation on businesses with no physical connection to the state. However, on June 21, 2018, the Supreme Court of the United States overruled this physical presence rule, finding it “unsound and incorrect.” As a result, states are now free to tax sales by out-of-state or remote sellers (remote sales).
Gail Cole began researching and writing about sales tax for Avalara in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts and endeavors to make complex sales tax laws more digestible for both experts and laypeople.