Key takeaways
- Understand nexus fundamentals: Knowing the difference between physical and economic nexus is essential to guide clients and prevent costly noncompliance.
- Stay current on thresholds: Economic nexus standards vary by state and change frequently—use automation tools to track them efficiently.
- Expand into SUT advisory: Offering sales and use tax advisory and registration support helps firms strengthen client relationships and create new revenue streams.
In short: Accounting firms can build a sales and use tax (SUT) service line in four steps. Learn the difference between physical and economic nexus, and track nexus thresholds in each state. Then help clients register for sales tax and offer ongoing SUT advisory. These steps cut clients' risk of fees and penalties.
Looking to offer your clients more in-depth advisory services when it comes to sales and use tax? These are some key tips to get started. You can also read Offering Virtual SUT Advisory Services.
Sales and use tax (SUT) rules change often and can be confusing. This is especially true since the landmark South Dakota vs. Wayfair case changed how sales tax is collected and remitted in the United States. Accountants who take the time to understand SUT laws can serve their clients better. They can also help cut the risk of fees and penalties from non-compliance. Here are the basics of any SUT specialization or service line.
1. What Is the Difference Between Physical Nexus and Economic Nexus?
Physical nexus comes from having a physical presence in a state, while economic nexus comes from selling enough into a state remotely. The 2018 Wayfair ruling changed sales tax a great deal. It let states tax remote sales based on economic nexus. We cover this in more detail in What Do Sales Tax Changes Mean for Your Clients?.
A physical presence in a state is no longer the only trigger for collecting sales tax. So even a business with no physical location in a state may still have to pay sales tax there. This applies if it sells remotely to people who live in that state.
Accountants should fully understand the difference between physical nexus and economic nexus. This matters most if they work with remote retailers or companies that sell digital products. If you don't know whether a client should pay sales and use tax in a state, you could be doing them a disservice. Companies that break a state's sales tax laws can be penalized or fined, even if the mistake was accidental.
Once you understand physical and economic nexus, the next step is to talk with your clients. Find out what clients do and don't know about nexus laws. Then make tailored suggestions to help them avoid future tax liability. Talking with clients is an essential part of helping them with SUT compliance.
2. How Do You Stay Up to Date On Nexus Thresholds and Standards?
You stay up to date on nexus thresholds by checking each state's rules regularly or by using technology that tracks them for you. After the Wayfair ruling, the thresholds for economic nexus changed. Depending on the state, a business creates economic nexus by making a certain number of transactions there. In other states, it's by passing a set amount of sales revenue there.
For example, most states follow South Dakota's economic nexus threshold of $100,000 or more in sales. Some states also count transactions, such as over 200 separate sales. South Dakota itself dropped its 200-transaction test on July 1, 2023. Some states have other thresholds that can change every year.
It's easy for businesses to get confused about whether they should pay these taxes. That's because so many businesses now sell remotely to people all over the country—and the world! The best way for a company to be sure of its nexus status is to work with an accountant or tax advisor.
Accountants should give their clients the latest information on nexus thresholds to help them stay SUT compliant. They can do this the hard way, by checking every state's threshold by hand on a regular schedule. Or they can do it the easy way: by using technology to keep up with changing standards.
Tools for this time-consuming work have only recently become available. Accountants are starting to see how automated sales tax analysis can help them scale. For example, LumaTax has built tools to estimate clients' possible exposure and, if needed, run a full nexus analysis. Users can securely complete a profile and upload transaction data.
LumaTax then automatically normalizes, consolidates, and validates the data. It flags missing information and incomplete transactions. In the end, LumaTax gives you a full nexus analysis report that is ready to share with clients.
3. How Can You Provide Registration Assistance?
You provide registration assistance by helping clients register for sales tax on time in each state where they have economic nexus. Once a business reaches economic nexus in a state, the next step is often to register to pay taxes there. Registration sounds simple, but it's one of the most daunting and cumbersome tasks for clients.
The key is telling timely registrations apart from late ones, but each state defines "timely" differently. Some states require businesses to register the day they pass the economic nexus threshold. Others allow a grace period of 30 to 90 days or longer.
LumaTax makes this process efficient for accountants and their clients with a tool to register for the required permits. At this step, you need to understand the fine details of sales tax, sellers' use tax, vendors' use tax, excise tax, and other transaction taxes. It's also smart to set filing frequencies that lower costs for clients. Using LumaTax's expertise makes this process smooth and efficient.
4. Why Should You Offer SUT Advisory?
You should offer SUT advisory because most online sellers can't manage sales and use tax compliance on their own. The Wayfair decision created unmatched opportunities for accounting firms to offer SUT advisory to their clients. Few businesses that sell products and services online understand post-Wayfair economic nexus rules. Few have the capacity and skills to manage their sales and use tax compliance.
If their accountant isn't reviewing sales tax and handling reporting and compliance, clients may wrongly assume it's not an issue. That lasts until they receive a nexus questionnaire from a state where they have no physical presence and haven't been collecting sales tax.
LumaTax makes it easier to manage sales tax obligations for accountants and their taxpaying clients. Don’t refer clients to other firms that already offer comprehensive SUT advisory—use LumaTax to build up in-house expertise and create a high-level service line dedicated to sales tax. Related reading: How To Scale a Profitable SALT Practice.
How Taxually handles this
Taxually’s LumaTax runs a nexus analysis on your sales, helps you register in the states where you must collect, and prepares and files multi-state sales tax returns, including Canadian GST/HST. LumaTax is currently available to enterprises and accounting firms. For the full workflow, read how to automate US sales tax filing in every state.
Related guides
Frequently asked questions
What’s the difference between physical and economic nexus?
Physical nexus is created by having a tangible presence in a state (like an office or inventory), while economic nexus is triggered when sales or transaction thresholds are exceeded—even without a physical location.
Why is staying current on nexus thresholds important?
Each state sets its own sales or transaction limits for economic nexus, and these rules often change annually. Staying up to date helps ensure clients remain compliant and avoid penalties.
How can accountants determine where clients have nexus?
Using automation tools like LumaTax allows accountants to quickly analyze client transactions, consolidate data, and generate nexus reports that highlight where registration is required.
What’s involved in registering for sales tax?
Registration varies by state and depends on when the economic threshold was met. Some states require immediate registration, while others allow short grace periods.
Why should firms offer SUT advisory services?
Sales and use tax laws are complex, and most businesses struggle to manage compliance. Offering SUT advisory helps firms build recurring revenue while protecting clients from audits and penalties.
