My Georgia business sells products to customers located in another state. Is my business required to collect the other state’s sales tax? Is my business required to pay the other state’s income tax?

The answer depends upon the extent of your contacts in the other state. Generally, “physical presence” in the other state is necessary before the other state can force your business to collect and remit the other state’s sales and use tax. Therefore, if your Georgia business:

a) sends employees into the other state(s), to make deliveries on company-owned trucks or to handle customer accounts or solicit sales,

b) owns property (real or personal) in the other state(s),

c) employs persons who live in the other state(s) or have some other business presence in the other state (such as an office), or

d) retains independent contractors to solicit sales in the other state(s),

then your business may have nexus (connection with the other state) sufficient to require collection and remittance of the other state’s sales and use tax.

Some states, including Georgia, impose nexus based on ties that your business has with local vendors that direct a local customer to the your business’ Web site. This is commonly known as “click through” nexus found in state Amazon laws.

For income tax purposes, solicitation of sales (by employee visits to the other state or through independent contractors) is not sufficient for the other state(s) to require your business to pay income tax due to the federal protections under Public Law 86-272. However, P.L. 86-272 does not protect every situation. The federal prohibition against the imposition of income tax protects only income from sales of tangible personal property. The federal bar does not protect income from leasing tangible personal property or from selling services in the state. Additionally, the federal bar does not protect the seller if the seller’s activity in the other state exceeds solicitation of orders for approval or rejection outside the respective state and fulfillment from places outside the taxing state. The threshold for income tax nexus has eroded in recent years. Most notably, some state appellate decisions now hold that “economic nexus” (deriving business from customers in the state) is sufficient to create nexus for income tax purposes. Finally, the federal protections under P.L. 86-272 do not protect your business from other taxes not tied to net income, such as franchise taxes and business privilege taxes.

The Litwin Law Firm, P.C., based in Atlanta, Georgia, represents clients statewide including Fulton County, Dekalb County, Decatur County, Cobb County, Douglas County, Forsyth County, Gwinnett County, Rockdale County, Henry County, Clayton County, Carroll County, Fayette County, Paulding County, Bartow County, Richmond County, Muscogee County, Columbia County, Clarke County, Chatham County Dougherty County, Glynn County and Cherokee County including the cities of Sandy Springs, Alpharetta, Roswell, Carrollton, Decatur, Marietta, Smyrna, Duluth, Cumming, Woodstock, Athens, Brunswick, Gainesville, Douglasville, Newnan, Peachtree City, Lawrenceville, Stockbridge, McDonough, Rome, Augusta, Savannah, Macon, Columbus, Albany and Dalton.

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