Exactly what is “economic nexus” and what does it have to do with accounting and bookkeeping? The common link is sales and use tax.

Businesses pay sales and use tax to the state and municipality where they have nexus, or a physical presence. This is already complicated varying general rates among local governments and municipalities within a state.  Then, there is a transit tax …..and then a food and beverage tax……. In addition, some items and services are taxed and others are not. Add another layer – selling to multiple states! Keeping up with this is a nightmare!

Enter internet sales. Online businesses do not have a physical presence and therefore, no nexus, and no sales and use tax to pay. Governments are not getting the revenue they need and other small brick and mortar stores are feeling slighted. They pay sales tax but the online stores do not.

In the recent Supreme Court decision tackling this issue, it is stated, “The Internet’s prevalence and power have changed the dynamics of the national economy.” Now, the question is how to collect sales tax and pay it to the proper states.  As a result, economic nexus replaces nexus, and if a company has an economic nexus, or online presence in a certain area, tax is collected and remitted to the state of the buyer.

With 10,000 tax jurisdictions and complex state tax laws, this new development in our national economy will make sales tax administration and compliance extremely difficult.

Beyond the Numbers Accounting Resources, LLC is here to help you navigate not only sales and use tax, but is also a resource for most of your accounting needs. Please contact us with any questions.