Navigating Trade Show Tax Implications: A Guide to Sales Tax and Product Samples

As trade show season kicks into high gear, businesses must be aware of the potential tax implications associated with attending these events and distributing product samples. While each state has specific rules, nuances, and exemptions, understanding the basics will help protect you and your business from unexpected tax liability.

Nexus

Generally, a connection, or nexus, between a taxing state and a business must be established to necessitate compliance with a state’s tax regime. Often, physical presence within a state is enough to create that nexus, particularly for sales tax. When attending a trade show, a business has boots on the ground which may be problematic from a sales tax perspective as it can obligate the business to begin collecting tax on its sales of goods in the state throughout the year.

The possibility of sales tax nexus exposure would significantly discourage trade show attendance and reduce a state’s economic benefits from the sales of hotel rooms, restaurant meals, and show tickets. For this reason, many states provide nexus exceptions for trade show attendees, provided certain criteria are met, such as a cap on the total number of in-state days during the year or limiting the volume of sales a business can transact at the show. State rules vary on these types of conditions and thresholds, so businesses need to pay close attention to the respective state regulations. For example, New York provides a 14-day limit on tradeshow participation before a sales tax nexus is established if no in-state sales are completed during that time. However, California permits up to 15 days of in-state trade show days and a $100,000 threshold on gross income activity at the show.

Product Samples

A common sight at trade shows is the distribution of product samples, which also require special awareness for tax purposes. While sales tax typically applies when a sales transaction occurs, thereby negating a tax obligation on a product giveaway, a business may nevertheless be liable for use tax on the promotional freebie. Use tax is the counterbalance of sales tax in that if sales tax is not paid when purchasing a taxable object, the purchaser has a responsibility to remit use tax instead. Concerning product samples, if these products were purchased as part of a business’s general inventory for resale, it is likely that no sales tax was paid on the goods because of the resale exemption. Accordingly, when these items are withdrawn from inventory and given away at a trade show, they would escape sales tax. For this reason, businesses are required to pay use tax, in place of the missing sales tax, on product samples taken from their inventory and used for promotional purposes at the show.

Businesses participating in trade shows and distributing product samples should be mindful of sales and use tax exposure, which are often overlooked repercussions, and factor them in when assessing the benefits and associated costs of trade shows.  The physical presence of a business in a state during a trade show can lead to additional tax compliance obligations, especially if state exemptions and limitations are exceeded. Furthermore, failing to properly consider the tax implications of promotional samples may lead to unexpected and sizable tax liabilities in the event of an audit.

Trade shows have myriad benefits, including boosting a company’s brand and cultivating relationships for business owners, but unmet tax responsibilities can create obstacles in fundraising, the sale of a business, and other key achievements. Business leaders do not need to burden themselves with memorizing the intricate state tax exposure rules, instead, they can strategically leverage the expertise of their trusted tax advisors at Anchin. By fostering a collaborative relationship with knowledgeable professionals, executives can ensure their businesses are staying informed, remaining compliant, and safeguarding against potential financial setbacks.

For more information on state-specific sales tax rules with respect to trade shows, please contact Alan Goldenberg, Principal and Leader of the State and Local Tax and Tax Controversy groups, or your Anchin Relationship Partner.