What is Nexus sales tax and does it impact you?

In South Africa we pay certain taxes within our businesses.

Overall businesses pay a flat rate corporate tax of 28%, although according to Expatica this will drop to 27% from 1 April 2022

A small business pays an estimated average tax rate of 19.8 % , which is the same as your average individual tax payer and is calculated by dividing the total tax paid by the taxable income earned.

These tax rates can be queried at any SARS offices country wide.

As well as individuals and businesses paying tax, we as consumers also pay tax each time we use a service or purchase a product. In south Africa we use Value Added Tax ( VAT) and this is a standard rate of 15%.

There are however several items that fall under zero rated tax and we do not pay VAT on them. These items are certain food items,exports, public transport, etc

Nexus Sales Tax

Knowing our tax system, we often fail to explore the tax systems of other countries and as businesses we may need to understand these in order to not breach any tax laws whilst dealing overseas.

So, I set out to discover more about more about Nexus Sales Tax.

What is Nexus Sales Tax?

Nexus sales tax predominantly affects 44 of the American states and refers to a sales law where there is a connection between a company who sells products or services and the state that they operate in. This state will then require them to register their business, collect tax on their sales and remit tax to the state.

These connections between business and state are based on sales reach within that state and certain business activity for example : where the business has a physical adress located.

Nexus itself refers to the amount of presence a business has within a certain location. So, an online store like Amazon, is required to collect sales tax in all states as they hold a “nexus” or physical business presence.

Economic Nexus

Economic nexus typically refers to online sales, affiliates which several bloggers use to boost blog sales and this is where it may affect you as a foreign business should you have clients who purchase online. It would be best to check with your local tax offices to see if these nexus laws apply to your business and country, as often economic Nexus impacts out-of-state sellers.

With regards to economic Nexus, as a seller you are required to collect sales tax if you earn above a certain revenue or sale threshold.

Interestingly, unlike South African tax rates, each state that falls under nexus sales tax, sets their own thresholds for nexus sales tax and economic nexus laws.

If you are wondering if this affects you and your blog it is best to consult a reputable tax practitioner for further information.

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