A company’s activities within each tax jurisdiction drive the requirements for whether it must register to collect indirect tax and correspondingly remit the tax. The minimum activity that creates nexus and the need to register with a tax jurisdiction continues to evolve so it is critical to understand your tax footprint in each jurisdiction.
As Adam Schaffner, Senior Manager Thomson Reuters ONESOURCE Indirect Tax recently pointed out:
“More than 15,000 tax jurisdictions exist in North America alone, according to Thomson Reuters ONESOURCE data. In 2016, there were more than 1,300 rate changes, including the introduction of new rates, and more than 2,500 product taxability rule changes.
“While the vast majority of consumers are probably only vaguely aware of bits of weird tax law, the provisions reside largely outside the purview of consumers and don’t drive their purchasing behavior. It is understandable, then, that when their online shopping cart returns a non-compliant tax rate because the data are wrong, they don’t notice.
“But eventually, someone does notice—someone who works on your tax team, or for an auditor, or for a tax authority.”
Holiday shoppers will frequently develop a game plan to ensure they score the best deals in the shortest amount of time. As retailers vie to capture the increasingly elusive attention of consumers, it is critical they know their specific activities in each tax jurisdiction and have a game plan for compliance.
The rules regarding what creates the need for tax registration continue to change so having a malleable plan is imperative. These are some common questions tax jurisdictions use to determine whether a business must register though keep in mind that the specific rules vary by jurisdiction:
- Does the business have a physical presence in the tax jurisdiction (e.g., office, warehouse)?
- Does the business utilize web or online affiliates in the tax jurisdiction and does that jurisdiction have a law that creates nexus when using online affiliates (e.g., ‘Amazon tax’)?
- Does the business own equipment in the tax jurisdiction (e.g., vehicles, equipment)?
- Does the business have representatives operating on its behalf in the tax jurisdiction (e.g., salespeople, independent contractors)?
- Does the business utilize employees or third parties to solicit sales in the tax jurisdiction (e.g., sales calls, trade shows)?
- Does the business provide services within the tax jurisdiction?
- Does the business deliver merchandise to the customers in the tax jurisdiction?
- Does the business have sales into the tax jurisdiction that exceeds the threshold requiring registration?
It is a best practice for businesses to review their strategy to be compliant with indirect tax regulations before a period of increased sales. Regular assessments of the indirect tax footprint helps manage the bottom line by minimizing the risk of tax exposure.