Tax Challenges for Direct Sellers

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Whether you’re new to direct selling or you’re an industry veteran whose business is booming, sales tax and related compliance issues can pose unique challenges — especially when rules and regulations keep changing. How do you stay on top of it all? Avalara, a leader in tax compliance solutions for businesses of all kinds, can help.

(When you’re done reading this, be sure to check out the details for Avalara CRUSH Global, the company’s free virtual tax + technology event coming up May 17–18.) ⬇️

Here are five things you should be thinking about when it comes to your business and sales tax:

1. Nexus for sellers

As a direct seller, the first thing you need to understand is where your business has nexus — the connection that ties your business to a specific state or municipality (and allows that jurisdiction to levy taxes on your business). Most often, nexus begins with where you’re physically located. For instance, if you sell in Washington state, you’ll likely need to collect and remit sales tax there. However, new regulations have made nexus more complicated; thanks to “economic nexus” laws and other rules, the amount of sales you make in a state could mean you’re obligated to collect and remit sales tax on those transactions, even if you aren’t located there. Other things that can impact nexus include warehouse locations, shipping facilities, and more.

2. Nexus for companies

For direct-sales companies, it’s even more complex — because they can establish nexus wherever their independent sellers operate. And who’s responsible for reporting sales tax can vary by state and municipality. In some states, individual representatives need to collect and remit, while the company itself is required to do so in other states.

3. Products and customers

The products you sell are part of the tax equation, but the location of the customers you sell your products to is important too. For instance, if you sell vitamins in certain states, they’re exempt from tax. In other states, the tax rate for vitamins may be lower than the rate for other products. And then there are states where your products are taxed at the same rate as just about everything else. Selling internationally? Well, your tax questions — and the potential restrictions — just got a lot more complicated. Don’t try to sell chewing gum in Singapore (unless it’s medicated), or imported coffee in Malaysia. Rather than restrict products, some countries just tax them at a higher level.

4. Smaller jurisdictions

In addition to the state level, your sales tax obligations can also be determined by counties and even cities. There are more than 13,000 sales and use tax jurisdictions in the U.S. that can require you to collect tax, and believe it or not, they can get even more granular than cities — taxability and rates can change based on locations within a city. So you’ll want to know exactly what rules apply to your location, and the location of your customers if you sell enough in a particular area to establish economic nexus there.

5. Automation

Fortunately, technology makes a lot of these challenges much easier to navigate. Avalara solutions allow businesses to automate compliance, from filing and remitting taxes to managing complicated issues such as exemption certificates. You can know when you’ve triggered nexus, apply tax rates and rules to thousands of jurisdictions, validate addresses, and much more. Whatever solution you choose, the most important thing about automation is this: You’ll be able to spend less time worrying about sales tax and more time managing your business.

Avalara CRUSH Global: Get insights for your unique tax challenges

Today, it’s possible to sell anywhere, anytime — creating new and expanded tax challenges for sellers offering their goods and services across channels and around the world.

Avalara CRUSH Global is a free virtual event on May 17–18 designed to help businesses of all sizes navigate compliance and ensure it never stands in the way of opportunity.

#AvalaraCRUSH Global features leadership and collaboration focused on digital commerce and the global tax landscape. Whether your business operates in a single country or internationally, you’ll learn best practices from Avalara experts, expand your professional network, and see how advanced technology can help you stay ahead of your compliance requirements.

Learn more and register for free at AvalaraCRUSH.com. 

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