Determining a Physical Presence
For any e-business, an important part of getting a handle on when and where to collect and remit sales taxes on online sales is determining the states in which it has nexus, or a physical presence. Answering that question can be tricky, though. For one thing, each state defines nexus differently. For another, as e-business models rapidly change, becoming more tightly integrated with brick-and-mortar business, e-commerce companies may soon find they have nexus in far more states than they used to.
Take online bookseller barnesandnoble.com, for example. The site, based in New York, was originally set up as a legally separate company from the brick-and-mortar entity, Barnes & Noble Inc., also in New York. So, even though Barnes & Noble, with 520 physical stores across the nation, clearly has nexus in most states, the online entity only had to collect and remit taxes on purchases in the states in which it considered itself to have nexus. According to a barnesandnoble. com representative, those states are New York (barnesandnoble. coms headquarters), New Jersey (its distribution center), and Virginia and Nevada (where it has Web servers).
Even though customers can currently return merchandise purchased online to any of Barnes & Nobles physical stores across the nation, this doesnt change where the barnesandnoble.com company has nexus, company officials said. Thats because online customers returning merchandise at Barnes & Noble stores can receive only store credit for the return, not a cash or credit card refund.
Last fall, however, Barnes & Noble announced a change that could affect the nexus picture of the online company. Physical stores will soon have kiosks that will be linked to the ordering systems of the online company, barnesandnoble.com.
According to the barnesandnoble.com representative, "As kiosks are gradually put into stores, we will have to address the issue of nexus for each state whose stores have kiosks" since that could legally constitute a physical presence in some states.
But nexus isnt the only issue affecting whether e-businesses collect and remit sales taxes on online transactions. In some cases, it depends on whos buying. Dell Computer Corp., in Austin, Texas, for example, collects and remits taxes in every state for its corporate customers. Thats standard practice for any business-to-business sale, online or offline.
But when it comes to selling systems to single consumers, it collects and remits taxes only for the states in which it believes it has nexus.
Even where it doesnt collect sales taxes, however, Dell reminds consumers that, technically, they owe taxes on their online purchases. Dell reminds consumers about "two to three times" during each transaction process that they will need to pay a sales tax to their states if Dell has not collected it from them at the point of sale, a spokeswoman said. At the very least, consumers get a reminder at the point of sale, and a reminder included in their invoice, which they generally receive about 10 days after the product has been shipped.