Manufacturers face sales tax risks at many points along the supply chain. Whether selling to retailers, directly to consumers, or supplying wholesalers and distributors, the unseen costs of errors in sales tax management can decimate the bottom line.
In Part 1, we looked at how selling to retailers can pose sales tax risk and what manufacturers can do to address this. Now, we’ll look at selling directly to customers.
Selling directly to consumers
When a manufacturer sells directly to a consumer or end user, the sale is subject to the raft of sales tax rates, rules, and boundaries that apply to other sellers. One problematic area is determining nexus, the connection between a seller and a taxing jurisdiction that results in a sales tax obligation. This is particularly problematic for multi-state manufacturing operations.
Every time a manufacturer makes sales into a state in which it does not have a physical presence, it might face additional sales tax responsibilities. Lacking a federal mandate, many states have instituted rules broadening definitions of nexus to include remote sellers, such as manufacturers selling into a particular state, even when they don’t have a physical presence within that location.
Knowing nexus requires more than an Excel spreadsheet matching transactions to rates. After all, ZIP codes often contain more than one rate within them. In order to determine where sales tax obligations exist, smart manufacturers automate the process, outsourcing nexus determinations and applicable management tasks to experts.
Read more about it: Sales Tax Risks Along the Supply Chain