Tuesday, October 25, 2011

Who CARES if they have nexus?!?

Hope she's not on my colonoscopy teamI've heard these two questions so many times, including today, that I feel the need to put them to rest.  So if I've suggested you read this article in response to an email, then ya best read it now.

Question 1: My vendor has nexus in our state.  Shouldn't THEY be charging tax?  

In a perfect world, yes, they should be charging you tax.  But, you may have noticed that we're not in a perfect world.  Your vendor may not realize they have  nexus, or they do realize it but choose to ignore it.  If you call them and insist they collect, you run the risk of:

a.  Ticking off your vendor
b.  Having to educate them about nexus, which is above your paygrade
c.  Having them say, "OK, we'll start charging tax," just to make you shut up.  This will come back to haunt you

You could rat them out to your state's department of revenue, but that just seems...tacky.

But who cares?  Just accrue and pay the use taxes the vendor should have charged you, and move on.  There's no economic cost to do this, and if you have a decent system in place, not really any more work.

There is a risk however, of the vendor getting caught in a couple of years. They may come back to you for the tax that they didn't collect when they should have.  Protect yourself from this hassle by having a clear audit trail on the invoice showing that you HAVE self-assessed use tax.

Question 2:  My customer is based in Canada.  I'm in Nebraska.  He has nexus in Nebraska.  I know this because I'm delivering the shipment to his warehouse here in Omaha.  He says I shouldn't charge tax because he's in Canada.  What should I do?

Charge Nebraska sales tax.  Their nexus isn't the issue when it's something YOU sell.  Nexus is only relevant to determine if a seller has to charge tax in states the seller ships into.  If you're a customer of this company, see question 1.  You shouldn't care about the buyer's nexus in your state.  What you need to care about is properly taxing your sale.

And generally, that means to base your decisions on where the delivery occurs.  Since that happened in Nebraska, you collect Nebraska tax.  If they claim the purchase is exempt because they're in Canada, ask them for proof.  Point out that if you go to Canada and buy something in a store there, you are not exempt from Canadian tax. 

There might be other exemptions (eg. manufacturing, resale, etc.).  But I know of no exemption in Nebraska for material delivered in Nebraska just because the customer is Canadian.  Again, ask them for evidence that they are exempt.  They should be able to provide you with a Nebraska or US law.

As a point of comparison, if you shipped the goods directly TO Canada, then they would be right.  The delivery point is Canada and Nebraska sales tax would no longer apply.  But that's not what's happening.

See why that delivery point rule is so handy?

The Sales Tax Guy

See the disclaimer - this is for education only.  Research these issues thoroughly before making decisions.  Remember: there are details that haven't been discussed, and every state is different.  Here's more information

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Picture note: the image above is hosted on Flickr. If you'd like to see more, click on the photo.  By the way, I have no clue why I used it.  It just seemed seasonal..

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