Over three years ago now, businesses everywhere got the ultimate surprise with the South Dakota vs. Wayfair, Inc ruling. This court case made the core of South Dakota’s economic nexus legislation the law of the land, and many states moved quickly to enact their own legislation. And currently, every state that imposes sales tax has passed similar legislation.
Even though it’s been over three years, businesses are still scrambling to get compliant where they need to be. There are still a lot of businesses that need to review their economic nexus and get control of their sales tax responsibilities.
At this point in time, most businesses know what economic nexus is, so it probably shouldn’t be sneaking up on you. But there are some taxes that might sneak up on you…
Odds are these taxes may not specifically apply to your business, but they do tell a cautionary tale. If you think that your business is covering its tax responsibility, you could be in for a surprise if you don’t take the time to double check on some of these more obscure tax classifications.
Here’s our list of inconspicuous taxes that are out there.
The NOMAD states – New Hampshire, Oregon, Montana, Alaska and Delaware – are the states without state sales tax. But just because you don’t have to pay state sales tax, doesn’t mean you don’t have to account for these states.
And that’s where rental and lease taxes come in. These taxes are imposed on the rental or lease of tangible personal property, and they are applied in much the same way as a state sales tax. Even in those NOMAD states where state sales tax doesn’t exist.
If your business does rentals in these states, make sure you account for the NOMAD states. Don’t assume that just because they don’t do state sales tax that your transactions are clear.
Business and occupation taxes are taxes levied on a business for the privilege of carrying on a trade, business or occupation. There are a couple states that impose these taxes at the state level including Washington and West Virginia. But the most prevalent for all businesses is Washington.
These taxes act a lot like economic nexus in that they are a tax on gross receipts, and you have thresholds you must meet in order to have a responsibility to file and remit this tax. If you do business in Washington, even as a remote seller, this tax needs to be on your radar.
A business activity tax is on a business based on non-transactional activities. Basically, these are taxes that go beyond the transactional trigger that sales taxes have.
One of the most prominent examples of these taxes is the Ohio commercial activity tax (CAT), which is a tax on the privilege of doing commercial business activity in the state of Ohio. Businesses that make over $1 million in gross receipts must file quarterly. All others must file annually.
This is also a tax that you can’t pass onto the customer. It’s coming out of pocket for you. If you do business in Ohio, you’ll be filing for this tax on top of your regular state sales tax returns.
An excise is a tax on a manufactured good levied at the moment of manufacturing – not sale. This is in addition to state sales tax.
In the United States, excise taxes are not applied uniformly from the federal to the state and down to the local level. But they are generally levied on items like alcohol and tobacco products.
Again, it’s all about covering your bases here. Today, there are a lot of products that blur the lines of traditional classifications. You may be creating a product with an excise tax and not even know it, so it wouldn’t hurt to check.
Talk to an expert just to be sure that you’re not falling short on your tax responsibility and exposing yourself to costly penalties down the road.
States usually don’t tax service, BUT some states do! You need to be aware of the states that do, and if your service is enumerated under their tax law.
It varies state to state, so it can easily slip through the cracks if you’re not paying attention. This is especially true in the modern realm of cloud computing and the sale of digital goods. Make sure you check each state you do business in to see if you have that responsibility.
It can feel frightening knowing that these taxes could be lurking out there.
If you run a business, you already have a lot of things to keep track of. Putting state sales tax and other unconventional taxes on your plate is unrealistic. It takes an expert to keep track of all of these nuances.
Working with a state sales tax expert is how you can truly get peace of mind when it comes to tackling these obscure taxes.
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