How Trade Shows and Sampling Events Affect Your Sales Tax Obligations
After holding leadership roles in several CPG companies, I understand why so many business owners struggle to understand sales tax requirements. You have to learn complex terms, know the laws in your jurisdiction, and keep up with tax compliance all year long. If you attend trade shows or sampling events, you also need to understand your trade show tax obligations.
Now that I'm mentoring emerging CPG companies, I work with a lot of business owners who struggle to understand physical nexus requirements. Learn how to avoid potential pitfalls while using trade shows, sampling events, and pop-ups to grow your company.
Understanding Physical Nexus and Sales Tax
Even if you have employees handle the majority of your accounting and finance activities, you need to understand what physical nexus is and how it affects your tax situation. In simple terms, physical nexus is a standard requiring you to pay sales tax any time you have a presence in a state.
"Presence" is a much broader term than you might imagine. It applies to many scenarios, not just operating out of a physical building. Depending on the location, any of the following may be enough to establish a nexus within a state:
Renting property
Soliciting sales
Having a third party represent your company to buyers within the state
Providing services
Delivering goods with your own vehicles
Maintaining stock (e.g., working with a marketplace facilitator)
This list isn't meant to be exhaustive, but it helps illustrate that many business activities could cause you to establish a nexus outside of your home state, including participating in trade shows. Ignoring nexus rules may expose your business to fines, late fees, and other penalties, highlighting the importance of working with an experienced tax professional.
How Trade Shows and Sampling Events Impact Sales Tax Compliance
Trade shows have several benefits, but many companies participate simply because they want to get their products in front of as many potential buyers as possible. Wineries participate in pop-ups and sampling events for the same reason.
Your trade show tax obligations depend heavily on the location of each event, as every state has its own tax rules. Some municipalities also require companies with a physical nexus to remit sales tax on trade shows and pop-up sales. For example, Alaska doesn't have a state sales tax, but Anchorage, Juneau, and other Alaskan cities do. If you sell products at an event in one of these cities, you'll have to comply with their sales tax rules for trade shows.
You may have to pay physical nexus sales tax if you sell products at the event or take orders to be fulfilled after the event ends. For example, if someone enjoys a sample of your best Sauvignon Blanc, they may decide to buy several bottles to enjoy at home. Depending on where the sampling event takes place, you may have to charge sales tax on the purchase.
A Sampling of Trade Show Tax Rules by State
Here are just a few examples of how sales tax for sampling events and trade shows varies from place to place:
Arizona. Any activity that results in gross receipts is taxable, from taking orders to selling products directly to customers during an event. If you engage in the same type of activity in your home state, you'll have to pay transaction privilege tax on every dollar of sales made at trade shows and other selling events.
California. California's tax rules are rather favorable to small businesses from other states. You don't have to register and pay sales tax if you meet two conditions:
1. You participate in California trade show and convention activities for no more than 15 days in a 12-month period.
2. During the prior calendar year, you netted no more than $100,000 in income from trade show and convention activities within California's borders.
Connecticut. If you sell products at a trade show in Connecticut, you must obtain a sales and use tax permit. This requirement applies whether you make $100 in sales or $100,000 in sales.
Illinois. In Illinois, your trade show sales tax obligations depend on how often you visit the state and how much you sell when you're there. You don't have to collect and remit sales tax if you meet these three conditions:
1. You attend no more than two Illinois trade shows within a 12-month period.
2. Your attendance at the two shows lasts for no more than 8 days.
3. Your combined gross receipts from the two shows don't exceed $10,000.
Massachusetts. You must collect sales tax on all inventory sold at a Massachusetts trade show. For example, if you sell 2,000 organic granola bars to the people who visit your booth, you must collect sales tax on each purchase. However, you may be able to avoid paying sales tax on orders taken at the event for future fulfillment. To qualify for this exception, you must spend no more than 3 days soliciting orders in Massachusetts each year.
Working With an Experienced Tax Professional
Because trade show sales tax obligations vary from state to state and even city to city, tax compliance is a major source of frustration for CPG companies and wineries. I highly recommend finding a tax professional with extensive experience helping brand owners understand the physical nexus rules.
Managing Multi-State Sales Tax Compliance
Whether you're worried about pop-up event sales tax compliance or preparing for next year's trade shows, there are several things you can do to get a handle on your sales tax obligations.
Determine the Nexus Threshold
Some states don't require you to collect and remit sales tax if your trade show sales stay under a certain threshold. Before you attend selling events, take time to determine the threshold for each state. You can typically get this information from a state's taxation and revenue department.
Meet the Registration Requirements
Some states require you to register for a sales tax permit or a temporary seller's permit. Before attending a selling event, make sure you've obtained a permit and met any other registration requirements. Again, the state's Department of Taxation and Revenue is the best source of information.
Keep Excellent Records
Some states have exceptions to their sales tax requirements, but you need to meet certain criteria, such as netting less than $10,000 in income per calendar year. Keeping excellent records makes it easy to prove that you qualify for one of these exceptions.
Technology has come a long way, so don't be afraid to lean on software and other tools to help you stay organized. Several software programs allow you to automate sales tax compliance, reducing the risk of costly mistakes. If you manage an emerging brand, look for open-source software to reduce costs without giving up the benefits of using technology to keep track of state-by-state compliance requirements. You may even be able to use ChatGPT and other AI tools to reduce your compliance burden.
Tips for Staying Ahead of Sales Tax Requirements
It's much easier to meet your trade show sales tax obligations if you know what those obligations are. Streamline your compliance efforts by researching state and local rules carefully. If you're confused about something, schedule a meeting with your tax professional. It's worth paying for an hour of their time if it helps you avoid serious compliance mistakes.
To reduce the risk of an audit, retain your sales records for at least 7 years. Transaction data should include the date, location, purchase total, and amount of sales tax collected. It's also important that you keep remittance receipts to prove that you paid all required sales tax on time. If you complete any exempt transactions, make sure you have records documenting why the transactions qualify as exempt.
Navigate Sales Tax Obligations With Confidence
Trade shows and other selling events present a tremendous opportunity to generate revenue, but they can also be a compliance minefield. It's important to understand your trade show sales tax obligations so that your company can participate in selling events without worrying about audits, fines, and other tax problems.
Balanced Business Group is a trusted partner in multi-state tax compliance. If you need personalized assistance in understanding state sales tax rules and positioning your business for success, reach out to BBG today. We can also answer your questions about accounts payable, accounts receivable, and other related topics.
Author: Pedro Noyola
Pedro Noyola is the CEO of Balanced Business Group (BBG), a company dedicated to helping Founders in the CPG food and beverage industry gain financial confidence. At BBG, Pedro combines traditional accounting with tailored financial guidance, providing industry-specific insights to ensure sustainable growth for passionate food entrepreneurs. He is also an angel investor and a mentor to emerging CPG brands via SKU and TIG Collective. Pedro’s career spans leadership roles at FluentStream, where he helped the company achieve recognition as one of the Fastest Growing Companies in America by Inc., and Telogis, where he was part of a team that grew the company’s recurring revenue from $50 million to $1.2 billion in under five years.
Pedro holds a BA and MPA from The University of Texas at Austin and an MBA from Harvard Business School. He is an active member of the Young Presidents Organization, continually seeking growth in both leadership and learning. Outside of work, Pedro enjoys family time and outdoor activities, drawing personal fulfillment from his roles as a husband and father.
