New Tax Laws May Affect Missouri Business Owners
Heads up, business owners.
A new ruling decided by South Dakota’s Supreme Court will soon affect the retail sales community. The court has ruled that businesses that conduct sales out of state will now be subject to sales tax, a departure from the past.
This decision is quickly being adopted by multiple other states, and it may affect you if you serve clients outside of Missouri.
Until recently, Missouri business owners wouldn’t have to collect sales tax from a buyer outside of Missouri, like someone in South Dakota, for example. You wouldn’t have to collect sales tax because the buyer wouldn’t pay sales tax. The only time you would have to collect and remit sales tax is if you sold to someone within Missouri—because, as a Missouri-based business, you would have to collect sales tax from Missouri residents.
What’s Happening Now?
Now, many states, like South Dakota, are perceiving sales tax-free transactions as unfair advantages. The South Dakota Supreme Court overturned its prior ruling regarding nexus, meaning sufficient physical presence. A business’ nexus can include physical presence, employees located in the state, installation of equipment, location of inventory or other factors. Online businesses and businesses based only in Missouri don’t have a physical presence across states, so customers didn’t have to pay a sales tax and business owners wouldn’t have to collect a sales tax.
When it made its decision regarding economic nexus laws, the court held that requiring physical presence was an "unsound and incorrect" interpretation of the Commerce Clause. The court’s reasoning was that it created unfair and unjust marketplace distortions, favoring remote sellers and causing states to lose out on enormous amounts of tax revenue.
Our understanding of the new laws is that you will need to start collecting and remitting sales tax when your business reaches the transaction and/or dollar threshold amount required by each state in which you sell. For example, if the taxable sales threshold in another state is $100,000, you are not required to collect sales tax until you sell $100,001.
How Does This Affect You?
You will now have to set up sales tax ID numbers and collect and remit sales tax in the states that have changed their rulings if:
You sell goods to out of state clients, and
You have reached the sales or transaction amount required for the states that have enacted the economic nexus laws.
It is important that you, as a business owner, are aware of which states are now enacting the economic nexus laws that require the reporting and remitting of sales tax.
Here are the states that have enacted the economic nexus laws as of October 26, 2018:
This post just covers the surface details, so we strongly recommend you conduct further research regarding how these laws will affect your business.
If You Need Help
If your business sells to multiple states, Accounting Plus is unable to help you track these sales, file sales tax reports/ forms or remit sales tax collected. However, we can provide assistance in gathering information about the states that have enacted economic nexus laws.
There are numerous software providers, such as Avalara or Vertex Inc., that can provide this service and to keep you up-to-date with the changing sales tax laws.