Online brands are expanding their business with pop-up retail space. These brands are building a business with mobile retail space to test out new markets, communicate their brand, engage consumers in new locations, and grow their customer base. In the process, are they also triggering nexus?
For online brands, pop-ups are a challenge from a sales tax perspective because each state has different rules about temporary, out-of-state vendors. For example, one of our clients is planning an event in California, to be followed with a temporary pop-up shop after the event. This company will need to register due to physical nexus for the event itself, then will collect sales tax indefinitely thereafter for both the pop-up shop and any online sales to California, even though the company does not meet the Wayfair threshold for online sales, because one day in California is deemed nexus for sales tax purposes.
Registering, collecting and understanding when to charge tax when the economy is changing faster than sales tax regulations is making it hard to keep up. Pop-up stores are treated similarly to permanent booths, such as a kiosk in a shopping mall. While every state and local jurisdiction may have nuances to comply with, generally pop-up retailers should, at a minimum:
- Register for a sales tax permit for your business before you start running the store or apply for a temporary seller’s permit for every location your pop-up will visit. (Five states do not collect sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon.
- Review the temporary vs. permanent permit issues to understand your liabilities and duties.
- Consider how you are going to manage the ongoing sales tax compliance requirements.
- Familiarize yourself with the combined sales tax rates on temporary and permanent sales in the city, county and state to be applied at the pop-up location where in-person sales will take place.
- Collect sales tax on every in-person sale you make based on the total cost of the sale.
- Consider sales tax automation for your online shopping cart for future sales in those states to ensure you are not left holding a sales tax liability from a prior in-person visit to a state.
- With automation, the sales data is captured so reporting is much easier.
If you have questions, give your TaxOps adviser a call.
Let’s talk tax
Judy Vorndran can be reached at firstname.lastname@example.org.