South Dakota v. Wayfair Decision Effects on Sales Tax Filing
The South Dakota v. Wayfair decision is just a couple months behind us, and states are scrambling to impose new tax collection and remittance requirements based exclusively on economic or virtual presence. With July 1 registration deadlines in the rearview mirror and October 1 and January 1, 2019 registration deadlines looming, the time is now to make critical decisions on how best to meet an expanded sales tax filing obligation.
Avoiding Sales Tax Filing Errors Post-Quill
Accurate and timely sales tax filing can be one of the most labor-intensive tasks associated with sales tax compliance, and research reveals that many companies are not particularly skilled at this important obligation. A recent Aberdeen study indicates that 50% of businesses listed tax filing as a top drain on the business, and those same businesses reported a whopping 40 percent error rate. In a world where states have little to no leniency for inaccurate or untimely filings, penalty and interest assessments can be substantial.
Below are five tips to prepare for an expanded sales tax filing obligation in a post-Quill world:
- Stay Alert to New State Sales Tax Filing Requirements – Even though its midsummer, state Departments of Revenue have been active in devising rules and regulations imposing economic nexus standards. When the summer ends and legislatures come back into session, momentum will likely pick up, with more and more states finalizing rules that may look to impose new requirements – often with very short notice.
- Know Your Sales Tax Filing Options – In devising requirements that are sufficiently simple for remote sellers (to avoid creating a constitutionally undue burden), a handful of states have designed simplified filing regimes. For example, simplified mechanisms in Alabama and Louisiana allow sellers to avoid tracking local rates and effectuating local filing. These options must be selected at time of registration to ensure eligibility.
- Populate Sales Tax Forms Accurately – Populating a sales tax return that accurately reports total sales, taxable sales and exempt sales is important but not necessarily sufficient to prevent penalty assessments. While most of the Streamlined Sales Tax Member States allow taxpayers to use a “Simplified Electronic Return,” the trend towards simplification is not universal. A number of states have relatively complex filing requirements, mandating taxpayers not only report their numbers exactly right but also requiring granular delineation of exemption types, with the Arizona TPT-2 setting the standard for complexity. In order to minimize the chance of a penalty, sellers should adopt determination and filing solutions that drive the transactions to the appropriate line(s) of the return.
- Sales Tax Filing Solution Scalability is Critical – Sales tax filing is relentless. For larger sellers, this means providing a timely and accurate return each and every month, sometimes accompanied by an annual reconciliation return. If your organization has a minimal nexus profile today, the solution you select must acknowledge that your requirements will be somewhat expanded by October, even further expanded by January, and quite possibly national shortly thereafter. In this world, giving your company the best chance of producing timely and accurate filings is paramount.
- Keep Up to Date with New State Sales Tax Filing Rules – States are constantly updating and modifying their returns and filing methods. For example, during the calendar year 2017, there were more than 234 sales tax filing adjustments to account for across the country. These changes sometimes occur close to filing deadlines and with little advance notice to taxpayers. Coupling this business reality with the fact states frequently take a no-tolerance policy to untimely or inaccurate returns means that your solution must account for a world where the pace and rate of change continue to accelerate.
How Sovos Sales and Use Tax Filing Safeguards Your Business
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About the Author
Charles Maniace is the Director of Regulatory Analysis at Sovos. An attorney by trade, Chuck leads a team of attorneys and tax professionals responsible for all the tax and regulatory content that keeps Sovos clients continually complaint. Over his 15 year career in tax and regulatory automation, he has given talks and presentations on a variety of topics including The Taxation of High Tech Transactions, The Taxation of Remote Commerce, The Regulatory Implications of Brexit, The Rise of E-Audits, Form 1042-S Best Practices and Penalty Abatement Practices for Information Returns. Chuck is a member of the Massachusetts Bar and holds a BS in Business Economics from Bentley College, a JD from Boston University School of Law, and an LL.M in Taxation from Boston University School of Law.More Content by Charles Maniace