Sales and use tax nexus
- sales tax
- use tax
- credit for tax paid to other state
- facts can effect the application of sales tax
- sales tax liens
- "nexus" and requirement for a seller to collect remote state's tax
- Streamlined Sales Tax Project
- personal liability of officers etc. for sales tax not paid by entity
- requirement for buyer to withhold sales tax in purchasing a business
Heightened state concerns with revenue loss has resulted in states continued efforts to tax transactions partly within the state and to require out-of-state vendors to collect the state's sales and or use tax. A state can require the vendor to collect its tax if the merchant has "nexus" (significant contacts or connections with the state). There is also ongoing work on a Streamlined Sales Tax Agreement that would significantly alter the obligations of out-of-state seller's to collect a state's sales tax.
The states are constantly working to extend their ability to require collection of their taxes and would like it to reach any exploitation of the state's economic base (e.g., the vendor is trying to sell to state residents).
Generally, states cannot impose the obligation to collect its tax on a vendor if the vendor does nothing more than solicit orders for approval outside the state (e.g., by phone or mail) and ship goods by common carrier. The "little more" that is needed to require the vendor to collect sales or use taxes is a question of the "facts and circumstances" which can leave substantial room for doubt. Individual state interpretations of "solicitation of business" range from:
- being strictly limited to the specific task of asking a customer to purchase one's product,
- to also including those generally accepted or customary acts in the industry which lead to the placing of orders;
- to including sundry activities closely related to the eventual sale of a product, whether they lead up to the sale or follow it.
Facts important in determining if there is sufficient nexus include presence (including transient or temporary) in the state of:
- the merchant's employees (e.g., sales, training or service persons)
- property (e.g., inventory or leased equipment)
- retail locations, offices or warehouses
- delivery into the state using the merchant's vehicles
Attempts to extend merchant's obligations to collect a state's taxes raise concerns with the burdens this imposes on interstate commerce (the constitution restricts states ability to impose such burdens). The U.S. Supreme Court in Complete Auto Transit, 430 U.S., at 279, 97 S.Ct., at 1079, set forth a 4 factor test under which it would sustain a tax against a Commerce Clause challenge so long as the tax:
- is applied to an activity with a substantial nexus with the taxing State;
- is fairly apportioned;
- does not discriminate against interstate commerce; and
- is fairly related to the services provided by the State.