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How do we determine if we need to collect sales tax in various states?

Full Question: Primarily our services are not subject to sales tax, but in some states, they are. PA and NM that I know of. I would like to know of the 50 states, which ones sales tax applies to.

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Answer:

Diane Yetter photoSales tax is required to be collected by a seller who has a substantial presence in the customer's ship to state. This presence in a state is referred to as nexus. Nexus can be established through the temporary or permanent activities of people (employees, service people or independent sales/service agents) or property (inventory, offices, warehouses) in the state. This can include the activities of affiliates and independent contractors. Temporary presence can be created through traveling individuals visiting states to call on customers or prospects, trade show attendance, or consigned inventory in warehouses. Nexus is created once a substantial presence is established. Unfortunately, this is not clearly defined by each state and can vary from 1 day to a number of days. This includes using anyone in a state who is compensated with a commission based on the successful placement of an order. If you have created nexus in a state, which is likely in your case, you may be required to collect tax on taxable sales into the state. If you don't have the required presence in a state, then you should not collect sales tax on the sales delivered into states where you don't have nexus. Rather, your customer will have the obligation to remit use tax on the purchase to their state. In terms of the taxability of your services, this is something that we can't answer in this forum as the exact services provided, where they are provided, who they are invoiced to and how they are invoiced will all impact the determination. We do provide sales tax consulting services and would be happy to talk to you about our services. You can contact us at diane@yettertax.com. For additional information on nexus, visit the Sales Tax Institute's Nexus News & Tips page or visit our YouTube page for a video explaining nexus or register for our online "Introduction, Definitions and Nexus" course.

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