![]() Some manufacturers already have their own e-commerce sites – a good starting point in bypassing the retail sales channel. In fact, there are only very few arguments against manufacturers selling directly to consumers. Many manufacturers are still biding their time but the issue is more relevant than ever. On the other hand, retailers fear to be circumvented and excluded from the sales process. Partnering with sales tax experts is always helpful (and sometimes necessary) in achieving a simplified sales tax compliance experience.They don’t want to jeopardize relationships with distributors and retailers, and thus, possibly, their own revenues, but they are constantly tempted by the larger margins of selling through direct-to-consumer sales channels. ![]() When direct selling companies have a thorough understanding of what it takes to be sales tax compliant, they can better ensure their companies meet their legal obligations and avoid audit exposure. While not taxable everywhere, access to SaaS software is taxable in many jurisdictions. Similarly, most direct sellers offer their salesforce a “replicated website.” This is often accomplished through hosted software, or software-as-a-service (SaaS). Do you charge your ambassadors a membership fee? If so, what does that membership fee entitle them to? Depending on what they get, the membership fee could be taxed. Consider the services you provide to them. When considering your sales tax responsibility, don’t just think about the products your distributors/brand ambassadors market to the public. Layered on top of that are the many temporary sales tax holidays that happen every year, many of which include an exemption for clothing. A fishing vest may not seem like something you would wear unless you were actually fishing (usually not an everyday activity) but in some states, fishing vests would qualify. If that were not complex enough, every state with a clothing exemption defines “everyday wear” a little differently. Some, like the Commonwealth of Massachusetts, exempt clothing but only on a portion of the sales price. Likewise, eight or so states exempt clothing intended for everyday wear from sales tax. Does a beverage need to be carbonated to be considered a soft drink? Well, it depends. Several states exclude candy and soft drinks from their food exemption, and within those states the terms “candy” and “soft drinks” can also be defined differently. However, each of those states may define “food” a little differently. For example, 38 states have special tax rules for food. ![]() With every state having a sales tax administer their tax independently, the complexities multiply. Many direct selling companies offer goods that are subject to complex and nuanced sales tax requirements. Economic nexus is established simply through sales activity, and in many states, $100,000 in sales or 200 individual transactions is enough to trigger a sales tax compliance obligation. The rules vary from state to state.Įven if you happen to avoid establishing physical presence nexus in a state or two, you also need to be concerned about economic nexus. However, even in the absence of a direct salesforce, attending trade shows, conferences or seminars can sometimes be enough. For example, if a business has employees or contractors, such as distributors or brand ambassadors, then the physical nexus has likely been met. ![]() Physical nexus is established through people or property. It’s important to consider nexus first because once nexus is established, the responsibility to collect tax begins immediately. ![]() Knowing whether or not physical presence nexus has been established is a critical first step for direct sellers. It’s a daunting task when facing it alone. Along with an expansive physical nexus footprint, direct sellers must know how their products and services are taxed around the country. Direct selling companies and multi-level marketing (MLM) businesses have numerous complexities to consider when it comes to sales tax calculation and reporting requirements. ![]()
1 Comment
6/28/2023 02:05:09 pm
Great blog! The content was insightful, well-researched, and presented in a clear and engaging manner. I really enjoyed reading it and gained valuable knowledge from your perspective. Keep up the excellent work!
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