If a company can realize savings through its tax strategies, it can pass those savings on to its customers in the form of lower prices and gain competitive advantage. In general, any seller of goods is required to collect sales and use tax in a taxing jurisdiction if it has a physical presence in that jurisdiction. A retailer's physical presence generally creates nexus, which is the legal principle that allows states to require sales and use tax collection. If a retailer is not obligated to collect sales and use tax, the consumer may be required to pay the tax, although, in practice, this rarely occurs.
Many activities can create nexus.
These include operating a store, office, or distribution center in a state, as well as the way in which a company handles sales returns. For instance, when a company allows customers to return merchandise purchased on its Web site to one of its stores, this may constitute nexus and require the company to collect sales and use tax. Etailers are addressing the issue of sales and use tax collection in a number of different ways, depending upon such factors as business structure and strategy. Many online-only etailers have positioned themselves to compete against catalog distributors. Like catalog companies, they generally do not collect sales and use tax in a majority of states because they do not have a physical presence in those states.