Should have is the not the same as could have. When it comes to taxes the rules are different as most States as well as the Federal Government take the position that you should have known that you were liable for filing tax returns. Nexus plays a big part of knowing when you are liable for taxes. What defines nexus is physical presence which goes back to the North Dakota vs Quill. Normally nexus is defined as having
However, States in recent years have attempted to expand their nexus definitions with the Internet to more than having employees or property. One of the biggest obstacles for States is that each State has their own definition as to what is taxable or what is non-taxable. For example, the definition of food differs from State. Due to complexity of these differences, the Courts have found that tax laws make it difficult and budensome to subject purchase of items on the internet to sales tax when the purchaser is in a different state than the company selling the product.
Streamline sales tax initiative is an initiative to streamline the process of collecting and reporting tax by the States by defining common sales tax definition whether it be direct mail or software definitions as example. Currently for the out-of-state customers, the States rely on the use tax paid by the customer. The focus of this group is to have the companies responsible for collecting, reporting use tax since the States believe they are losing millions and billions because the purchasers are not reporting the use tax on the items in which the retailer or company has not collected sales tax. As the common definitions are determined by the States under the streamline sales tax initiative., the legislature of each of the member or associate states are updating the sales tax laws into their revenue code to match the new sales tax definition. The final phase of the sales ta initiative is to get the U.S. Congress to pass a law making companies responsible for reporting and collecting sales in States where these currently do not have nexus.
As a company, today you can volunteer to collect and report sales tax to states where you currently don’t have nexus. The States would appreciate given the current state of the economy in many States; but i is only matter of time before the sales tax initiative is finalized and become law in the future. But until then, the question becomes will your small or large company prepared and when could have become should have.
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