On Thursday, June 21, 2018, with the decision of the Supreme Court in South Dakota v. Wayfair, the sales tax compliance landscape underwent a dramatic shift. If you haven’t already, the time is now to consider whether you are doing what you need to do to keep your company safe.
The Immediate Aftermath of South Dakota vs. Wayfair
While legalities don’t make it 100 percent clear whether the new South Dakota economic nexus standard (over $100,000 in sales or 200 transactions) goes into effect immediately, there is little doubt that it will go into effect shortly. Simply, if your company exceeds these thresholds based on last year’s results, or projects to exceed these thresholds this year, South Dakota sales tax collection and remittance is in your immediate future.
The same likely goes for states such as Vermont and North Dakota, as they enacted similar legislation that technically became effective the minute the Supreme Court ruling was handed down. Other states are not far away either. Some have enacted economic nexus statutes that are set to go into effect as soon as July. Others have statutes on the books currently subject to legal challenges that may have been rendered moot by the Wayfair decision.
States are hungry for tax revenue and few are likely to let this opportunity pass them by. Over the next few months and into next year, many sellers can expect to be responsible for collecting and filing sales tax in more states.
[Watch our onDemand webcast, “South Dakota vs. Wayfair Supreme Court Decision – Live Q&A with Regulatory Experts” broadcast on June 27, 2018. Learn what your peers are most concerned about and how to prepare, when and where]
Scalable Tax Automation is the Solution
Sales tax compliance is challenging but not impossible. Below are some thoughts on how you might begin to plot out a course of action to achieve and sustain tax compliance.
1. First (and likely foremost) it wouldn’t hurt to run some quick numbers to determine where your company might fall within the scope of an enacted (or soon to be enacted) economic nexus rule. The Court was very clear that the South Dakota standard passed “substantial nexus” muster. So, while other states have (and may continue) to articulate different thresholds, using the $100,000 in sales and 200 transactions standard to ballpark your exposure, should still provide some solid data.
2. If you are collecting and remitting tax in one or more states today, you should be evaluating the accuracy and scalability of your current approach. Is it getting the job done for you? Does your current solution provide a viable (and cost effective) approach to collecting and filing tax in 5, 10, 45+ jurisdictions?
3. Talk with some providers. While the Court said the physical presence standard was fatally flawed, the world was likely not ready for nationwide sales tax compliance in 1992. Today, tax automation software solutions abound. Which one is right for you will depend on the size of your business (today and tomorrow), your existing ERP, accounting systems, shopping cart provider, and what you sell. Implementing a solution takes a little time and effort – and taking the time to make the right decision upfront, will yield long term benefits.
Voluntary Disclosures Remain an Option
Registering yourself to collect tax in a state puts your company, at least to some extent, on the Department of Revenue’s radar. Of course, if your contacts with a state are truly economic, you shouldn’t have too much to worry about. Most states pursuing economic nexus standards are committed to prospective liability only. However, if you think you might have had a sufficient physical presence in the past, such that you should have been collecting tax in a particular state all along, consider a voluntary disclosure. While they sometimes go by different names, almost every state offers a program that allows companies to come forward, declare their past liability over the last few years, and pay what they owe. While interest is often applied to the payment due, penalties are frequently waived.
Thinking about Use Tax
If your company purchases items (aside from items for resale) in one, or more, states, you should also consider your process for validating the tax on your supplier invoices.
Nothing about the Supreme Court decision changes the fact that sales tax liability is joint and several. If your supplier fails to calculate tax correctly (or doesn’t calculate tax at all) then the obligation falls to the buyer to account for overcharges or any tax shortfall. Not all companies can be counted on to proactively address their new sales tax compliance burden, and in the wake of Wayfair, it shouldn’t be surprising to see more invoices with improper tax calculations. Over-charged tax means money out the door. Under-charged tax creates audit exposure. If purchasing is an issue for your company, be sure to consider use tax compliance tools in your vendor selection process.
Sovos has been preparing for this day for more than a decade. As a Certified Service Provider under the Streamlined Sales Tax Initiative, the rates and rules in our tax compliance solution are certified in the 24 Member States. We provide robust and scalable technology solutions appropriate for Fortune 500 companies and small web sellers alike.
View the onDemand webinar, South Dakota vs. Wayfair Supreme Court Decision – Live Q&A with Regulatory Experts to learn how the Supreme Court’s ruling will affect your eCommerce sales tax compliance process, best practices to ensure compliance in states where you have nexus, how this decision could trigger similar legislation in other states, and what you need to worry about now. Looking for tools? Start here to automate and optimize vendor invoice sales AND use tax accuracy on purchases or improve exemption certificate management capture, validation and retrieval.
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