Last summers US Supreme Court ruling in South Dakota vs. Wayfair sent a shock wave throughout the world of eCommerce, particularly with the millions of online retailers whose sales tax collection obligations have likely increased. The ruling overturned prior rulings which created the physical presence standard (nexus) by which a state could compel an out of state seller to collect sales tax on sales into its state. The South Dakota law, affirmed by the Court, allows nexus to be created based on economic activity into a state – typically sales and/or transaction volume thresholds. If you are over the established threshold, you must collect the sales tax of that state.
So, given the change caused by the Court, what should you do? I’ve outlined some common-sense steps any online retailer can take to help them determine how the new rules affect them.
1.) Determine Your New “Nexus” – The physical presence standard was fairly easy for an online retailer understand and determine their sales tax collection obligations…the new rules less so. These steps can help you understand your obligations:
a. Understanding State Guidance on Compliance Timing…When? – As of January 1st, 2019, 31 states will have provided guidance on when out of state sellers should be collecting its sales tax. Understanding these dates is critical to becoming compliant.
b. Understand the State by State Thresholds…What? – Each state can set its own thresholds, revenue and/or transactions (over the prior 12 months typically) that determine if you have to collect in that state. The best way to determine this is to analyze your sales over the last 12 months. If you are spreadsheet saavy, create a pivot table on state which would allow you to understand your sales and transaction volume in each state to determine where you are over a states threshold. On our website , we have a post-Wayfair guidance map where you can compare your results to each states timing and threshold guidance.
2.) How to Deal With Your Marketplace Sales – Marketplace facilitator laws in several states have been enacted with the intent of putting the obligation on the marketplace to collect/remit sales tax on behalf of it’s sellers or report to the state on sales coming into it. Amazon has been quite clear that it will collect/remit in most states with these laws. However, if you sell on other marketplaces it is important to understand what they are doing. If they are reporting only, the obligation to collect/remit likely still rests with the marketplace seller.
3.) Assess What You Can Do Yourself vs. Where you Need Help – Like many things in life, change can be tough. Sales tax is no different. You likely have a method in place for how you currently handle sales tax compliance. But given the changes, the workload surrounding that method has likely increased – in some cases dramatically. Your ability to self-assess what you can continue to handle and where you may need outside assistance is critical to your ultimate compliance. If you have done everything to determine your new collection obligations but don’t have the time to file sales tax returns in more states, you have a problem. The good news is if you do need help, whether it be accounting, software, Streamlined Certified Service Providers such as TaxCloud, it’s available. Be honest in your self-assessment and you’ll be better off for it!
About the Author: Patrick Riley is Vice President of Business & Corporate Development at TaxCloud, a leading provider of sales tax management & compliance services for online retailers. He can be reached at firstname.lastname@example.org.