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Will use of direct shipping distributors create nexus for us in other states?

Full Question: Our pet product company will operate a website and will use direct shipping distributors outside of Florida to fulfill orders made through the website. It is understood that if a sale is made to a customer in Florida and it is delivered to them that we are responsible for paying state sales and use taxes on the items sold. If distributors were to deliver items to customers outside of Florida are we responsible for collecting taxes for sales made outside of Florida? We will have distributors in Ohio and New Jersey. Also, if we sell in the states where we have distributors and they are delivering the product in-state for us are we responsible for collecting taxes and paying their state taxes for sales. Could you clarify what "nexus" is and explain what needs to be done.

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Answer:

Diane Yetter photoYou are correct that sales made by you to customers in FL would require you to collect FL sales tax on those sales (assuming you are registered to collect FL sales tax which you should be). In terms of sales into other states, it is unclear if you are selling to distributors who are then reselling to end customers or if the distributors are simply sales representatives who are soliciting sales on your behalf. If you are selling to the distributors for resale, then you would be required to obtain valid resale certificates from them to exempt your sales if you have nexus in the states where they are operating. If they are acting as sales representatives for you and you are making the sale to the end customers, then these distributors create nexus for you and you would be required to register and collect sales tax on sales to customers in the states where the distributors are operating. If you are operating under a multilevel marketing structure, there are very specific rules that apply to this industry that should be evaluated. We can assist you in that evaluation. Nexus is a term of art that defines when a business has established sufficient presence in a state such that it is subject to the rules and taxation of that state. Nexus is generally established through substantial physical presence of either people or property on a temporary or permanent basis either through employees or agents operating on behalf of a company. Once nexus is established, a company generally is required to register to collect sales tax on all taxable sales made into the state. Nexus can be challenging to determine when you have a complex structure and if you are a multilevel marketing company we can assist you with evaluating the appropriate tax registration and tax collection rules as they apply to your business.

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