Sales Tax Basics

Generally, a state may impose a sales tax on your sales within that state only if certain conditions are met.  Unfortunately, it is simple for a state to assess sales tax from your business.  There are steps you can take that may legally exempt your company from having to pay a sales tax in certain states.  Certain laws exist that can exempt a company from requiring registration and payment of sales tax.  Certain triggering events can suddenly create create an unforeseen sales tax liability.  Not only do sales matter but the activities a company conducts in that state.

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If you do not meet the requisite amount of sales or transactions in a state, you may still fall victim to having to pay sales tax by merely employing independent contractors in the state. What really matters are the activities these employees or independent contracts do in a given state.  

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If your business sells goods online, you likely have heard of Wayfair and how it changed the online-sales industry. In sum, South Dakota passed a law requiring out-of-state retailers to register to collect sales tax if the retailer met one of two conditions: $100,000 in sales or 200 transactions.   The Supreme Court said this was constitutional and afterwards, other states began passing similar sales tax laws.  On another note, South Dakota differs both in population and geographically, thus there may be room for this rule to change based on a state setting a sales number that is too low to establish nexus; a counter-argument to this is that limitations were put into place to protect small business, regardless of the state’s size. 

Sales tax can get complicated.  It is important to have an attorney that is well-versed in the field to analyze your situation and more specifically, the activities you do in a given state--including sales and transactions within the state.