The basic rule for collecting sales tax from online sales is: If your business has a physical presence, or “nexus”, in a state, you must collect applicable sales taxes from online customers in that state. If you do not have a physical presence, you generally do not have to collect sales tax for online sales.
There is a possibility that online sellers could be facing a sales tax crackdown in the year 2021 as per a report by Avalara, an automated tax compliance software. It is a self-serve online resource that enables companies to quickly discover states where their sales activity has likely triggered sales tax obligations and determine which states should be closely monitored by providing a detailed assessment of their state-by-state sales tax obligation risk over email.
Various states that had become lenient on the enforcement efforts due to the ongoing Covid-19 situation will be looking forward to accelerating audits as soon as it is possible, the maker of tax compliance software stated.
In current times, states are making use of high-technology methods to look for those sellers who fail to comply to the tax deadlines, also including artificial intelligence and data mining tools. However, there are also states who are taking a more old-school approach by shopping online to check if the merchant is charging tax on its products.
Avalara stated: “Remote sales tax collections have been surprisingly resilient during the pandemic, so states in need of more tax revenue may turn a scrutinizing eye on unregistered out-of-state sellers making sales in the state.”
In addition, states are looking for revenue retroactively – marketplace sellers could come under scrutiny for past sales tax, Avalara said, in a recent blog post:
“It’s common practice for marketplace sellers to store inventory in warehouses and fulfillment centers owned or operated by marketplaces. California and Washington are two states that have found marketplace sellers liable for past sales tax because of such inventory. They insist the inventory gave out-of-state marketplace sellers a physical presence in the state, and therefore an obligation to register then collect and remit sales tax before the marketplace facilitator laws took effect. Other states could pursue a similar path in 2021.”
A report was released by Avalara this month which has its Annual Sales Tax Changes. It ascertained that only those states who have a general sales tax, don’t currently tax online sales by out-of-state sellers via economic nexus. But that is likely to change- Florida and Missouri are likely to adopt economic nexus in 2021, the company said.