Sales tax for needlepoint shops

For a long time a shop collected sales tax in its own state and in any other state where it had a physical presence, such as a storefront, an employee or a warehouse. Canvases shipped three states away were usually not your tax problem.

That changed in 2018. Today a needlepoint shop with a busy website can owe tax in states where it has no building, no staff and no inventory at all. Most small shops are still under the line in most states. The work is knowing where the line is and noticing when you get close.

What South Dakota v. Wayfair changed

In June 2018 the U.S. Supreme Court decided South Dakota v. Wayfair, Inc. The Court overturned the physical presence rule it had upheld in 1992 in Quill Corp. v. North Dakota, and allowed states to require tax collection from sellers based on how much they sell into the state.

The South Dakota law at the center of the case applied to sellers with more than $100,000 in sales into the state, or 200 or more separate transactions, in a year. Other states moved quickly. Every state with a statewide sales tax now has some version of this rule, which is called economic nexus.

Nexus simply means enough of a connection with a state that it can require you to register, collect its tax and file returns. Physical presence still creates nexus. Economic nexus added a second path that is reached through sales alone.

How thresholds work, in general

Each state sets its own threshold. Many use a sales amount, and $100,000 a year is a common figure. Some states set a higher amount. Some also count transactions, so a seller can cross the line with many small orders even if the dollar total is modest. A number of states that started with a transaction count have since dropped it.

The details differ in ways that matter.

• Some states count all sales into the state. Others count only retail or only taxable sales.
• The measuring period might be the previous calendar year, the current year, or a rolling twelve months.
• States differ on whether sales made through a marketplace count toward your total.
• Once you cross a threshold, there is usually a date by which you must register and start collecting.

Thresholds change, and an old table is worse than none. That is why every figure in our state by state table links to the state's own page and shows the date we checked it. Check the department of revenue site for each state where you have real sales, or ask your CPA to do it as part of a yearly review.

One pattern is worth knowing for needlepoint shops in particular. Thread orders are small and frequent. A shop that mails a lot of single cards and small fiber orders can build up a high transaction count in a state long before the dollar total looks large. If a state still uses a transaction count, that is the number to watch.

Every state's threshold in one place

Our sales tax nexus by state tool lists the remote seller threshold for all 50 states and DC. It shows the sales amount, any transaction count, the period each state measures and the marketplace rule, each with a link to the state's own source. You can also enter last year's sales and order count for each state you ship to and see where you look over the line, close to it or under it.

It is general information, not tax advice. Use it to see where to look, then confirm with the state and your CPA.

Why online sales and market sales matter

For remote sales, most states treat an order as taking place where it is delivered. A canvas shipped to a stitcher in another state is generally a sale into that state, and it counts toward that state's threshold. Few registers add this up by state for you, so it is easy to cross a line without seeing it.

Markets are different, because you are there in person. Selling at a show, a retreat or a market in another state can give you a physical presence there for those days. Many states expect out of state vendors at events to hold a temporary permit and collect tax on retail sales made at the event, whatever their annual total.

Wholesale sales work another way. If you are an exhibitor selling canvases to shops, those are sales for resale and are generally not taxed, as long as you collect a valid resale or exemption certificate from each buying shop and keep it on file. Without that certificate, a state may treat the sale as retail and expect tax on it. If you are a buyer, bring your resale information with you, because the designers you order from will ask for it.

Inventory left in another state can create presence too. A trunk show of your canvases sitting at another shop, or stock on consignment, is worth mentioning to your CPA.

Marketplace sales

If you also sell through a marketplace such as Etsy, Amazon or eBay, the marketplace is usually responsible for collecting and sending in tax on those orders. Every state with a sales tax has a marketplace facilitator law, and in nearly all of them that law puts the duty to collect on the platform.

That does not always take those sales out of your picture. Some states count marketplace sales toward your own threshold and some do not. Some want them reported on your return even though the marketplace already paid the tax. Download your marketplace tax reports every month and keep them with your other records.

What is taxable is its own question

Owing tax in a state is one question. Which of your sales are taxable there is another. Canvases and threads are usually taxable as goods, but a few things vary more from state to state.

• Shipping and handling charges are taxable in some states and not in others, and the answer can depend on how the charge appears on the invoice.
• Digital products, such as a PDF stitch guide, are treated differently across states.
• Classes, online or in person, and finishing services may be taxed as services, as part of the goods, or not at all.

Set up your register and website so these items are their own products. That way the right tax rule can be applied to each one, and changing a rule later is a setting rather than a cleanup project.

Records to keep

Good records turn a scary letter from a state into an afternoon of paperwork. Keep these for several years. Your CPA can tell you how long the states you deal with expect.

When to talk to a CPA

You do not need a CPA to read this guide. You do want one before you act on it. Call when any of these happen.

• Your sales into another state are getting close to what you think its threshold is.
• You plan to exhibit or sell at a market in a state where you are not registered.
• You start selling through a marketplace, or a marketplace becomes a large share of your sales.
• A state sends you a letter or a nexus questionnaire.
• You hire someone who works from another state, or keep stock there.
• You realize you may have owed tax somewhere for a while. States often have programs for coming forward on your own, and a CPA can tell you if one fits.

A good CPA will look back at your sales by state and set up a simple routine to keep checking. Thresholds are crossed gradually, one canvas at a time, so the routine matters more than any single review.

How we help

Our bookkeeping for needlepoint shops includes sales tax compliance. Each month we pull sales by state from your register and website, watch the states where you are getting close, keep your tax settings matched to your registrations, and bring in the CPA and tax professionals we work with when a question needs a licensed answer. Before market, we help you sort out permits and resale certificates so the paperwork is done before you pack.

If you want to start smaller, the free shop checkup looks at your website and comes back within 24 hours. You can also read how we handle tax on Shopify, Square and other platforms.