How Sales Tax Works for Direct Sellers
Learn how agents, or distributors, can give direct sellers the obligation to collect sales tax in multiple states, just by making sales.
Hi, welcome to Will’s Whiteboard. I’m Will. If you’re a direct seller, you know that one of the greatest assets to your business is your people, or your peeps. Your peeps are the ones that are out there making direct sales, and also recruiting other people to help your business grow. Unfortunately when it comes to sales tax, your people are a liability.
So in a way, one of your biggest strengths is also one of your biggest compliance liabilities. That’s because anywhere your peeps make direct sales, they’re likely to give you nexus, or the obligation to collect sales tax.
So to illustrate this phenomenon, we’re going to play a little game. If you’ve ever heard of Chubby Bunny, it’s a game where you put a marshmallow in your mouth you try and say “chubby bunny”, then another marshmallow and try and say it and so on until you can’t say “chubby bunny” anymore. Well we’re going play that, and I’m going to put peep after peep in my mouth and try and say “You’ve got nexus.”
Let’s just say that you’ve got one peep, and they’re selling in the state of California. You’ve likely got nexus there. Then let’s say that, you’ve got another peep, and they’re still on the West Coast, and they’re selling down in
Arizona. You’ve got nexus. All right. Then, you keep expanding and growing. You’ve got another peep, and they go to Florida, and they make sales. You’ve got nexus.
Texas, you’ve got nexus. You’ve got nexus. You’ve got nexus in Texas. You have a client that goes over to Louisiana. You’ve got nexus. And then you go big time, you go up to New York. You’ve got nexus. [inaudible 00:02:07] You’ve got nexus, and.
Okay, sorry about that. It got a little too out of control for me. It was hard to handle all those peeps. The same thing can be true if you’re a direct seller, and you’ve got people all over the country giving you Nexus, or the obligation to collect sales tax. That means you’ve got to worry about rules, rates, and filings all across the country. Things the change from month to month and year to year, and that can be a lot to handle.
So for direct sellers, you need to make sure that you monitor your greatest strength, your peeps, because they’re a sales tax liability. And anywhere they’re making direct sales, you need to understand what your sales tax obligations are and make sure you comply. Look for a technology that can help you scale your sales tax compliance as you grow, and your strength will stay your strength.
Thanks very much. I’ll see you next time.
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