Essentials of Filing Sales Tax for CPG Companies

1. Understanding Sales Tax Nexus

CPG companies must be aware of two types of nexus:

Physical Nexus: Established by having a physical presence in a state, such as a store or office
Economic Nexus: Triggered when sales in a state exceed a certain threshold, even without physical presence

2. Economic Nexus Thresholds

Thresholds vary by state. For example:

California: Over $500,000 in annual sales
Most states: Around $100,000 in annual sales

Some states (Oregon, Alaska, Delaware, Montana, New Hampshire) don't charge sales tax

3. Sales Tax Rates and Variations

Sales tax rates differ by state and can even vary within states:

Example: California's rate is 7.25%, while Tennessee charges 7% and Oklahoma 4.5%
In New York, rates can range from 4% to 8.875% depending on the specific location

4. Product-Specific Considerations

Not all products are taxed equally:

Clothing may be tax-exempt in some states but not others
Most states don't apply tax to grocery store food

Always check a product's tax status before adding it to your inventory

5. Sales Tax Exemptions

Be aware of specific exemptions:

Nonprofit organizations in some states (e.g., Virginia)
Wholesaler and reseller purchases (e.g., Colorado)
Seasonal tax holidays (e.g., New Mexico's back-to-school period)

Collect and store valid exemption certificates from qualifying customers

6. Sales Tax Permit Registration

Before collecting sales tax:

Register for a sales tax permit in each nexus state
Check state-specific requirements for permit timing
Prepare necessary documents (e.g., EIN) for registration

7. Filing and Payment

Understand your obligations:

Filing frequency may be monthly, quarterly, or yearly
Consolidate sales data from all channels for each state
File reports and pay taxes by the due dates

8. Consequences of Non-Compliance

Failing to file or pay sales tax can result in:

Penalties or interest fees
Potential criminal convictions in severe cases

9. Leveraging Technology

Consider using specialized software to:

Automatically apply correct sales tax rates
Simplify the collection and filing process

By understanding these essentials, CPG companies can navigate the complex landscape of sales tax compliance more effectively. Always consult with a tax professional for specific advice tailored to your business situation.