In general, I don’t do much with sales tax for my clients. I help them out here and there, and file returns for companies that are unable to navigate the state sales tax portals. In fact, I should admit that I try to stay away from sales tax as much as is humanly possible.
Lately, however, it’s been more difficult to ignore, especially if you consider use tax – the complement to a state’s sales tax. My home state, California, has been on a furious streak to enforce use tax compliance for individuals and businesses recently, and now that the Wayfair decision is out, I had to get focused and dive in. Here’s how to be a trusted advisor in light of all the recent hubbub.
Are My Clients Affected by This Ruling?
They could very well be. South Dakota v. Wayfair is a case decided by the U.S Supreme Court on June 21, 2018, that overturned the long-standing physical presence nexus standard, and in doing so, enabled states to enact economic nexus rules that require even small businesses to collect and remit sales tax. States differ on how they are choosing to implement this new standard, but the general rule of thumb is that companies selling into these states with sales or gross revenue ranging from $10,000 to $500,000 and/or 100-200 sales transactions per year will be affected. To make things really interesting, there are still other nexus triggers in many states that might affect your clients, such as affiliate nexus, or use of in-state servers or services. Even having a referral or reseller agreement with an in-state retailer can require you to collect and remit tax.
Which States Are We Talking About?
It’s a good size list, and as trusted advisors, we need to keep up with what is going on. While the list does not encompass all 45 taxing states yet, Wayfair clearly opened the door for states to collect revenue more easily. I suspect, as do many others, that more and more states and even local districts are going to jump on this bandwagon and enact laws … fast! Fifteen states had laws in effect pre-Wayfair and 14 more have gone into effect or have upcoming effective dates since Wayfair. To top it off, 11 additional states are talking about introducing legislation in their next session. That only leaves five states that have yet to act – and it may only be a matter of time until they do.
You can keep up with the state law updates as they unfold.
What Should I Do Now for My Clients?
Don’t panic. Most Wayfair enforcement begins later in 2018, but clients may start asking questions very soon. Be ready for them and target the clients you may need to have a conversation with. If you currently work with a business affected by Wayfair, speak to them early. For example, I have an e-commerce client who sells stickers and socks that may be affected by Wayfair laws, so my next step is to call and set up a meeting. Although sales are far under the gross revenue mark and his items are small, he may have the required number of transactions to qualify his business for economic nexus in some states. He will need to be aware. He will need to be advised.
Look for QuickBooks® Online Integrations
I am a firm of the future. My clients who have sales tax compliance issues are using QuickBooks® Online (QBO), which has an automated sales tax center that all these states can be programmed into – if reporting is necessary. All the numbers needed to do the sales tax returns are right there, auto-populated and maintained for accuracy. My e-commerce client also uses Shopify, thank goodness! With all that automation, I have time to look and advise. Being a firm of the future also means I must work with clients who are future-ready. Current and onboarding clients who deal with sales tax must be on QBO and, if their company’s complexity dictates, have the necessary third-party app that integrates with QBO.
Notable Items and List of States
- Don’t register for sales tax in a state if an economic nexus threshold has not been met. This goes in the “don’t panic” category. Registration means reporting.
- On average, it may be cost-effective to be only about 88 percent compliant. The cost of compliance may be far greater than the penalties and interest to pay if the company is audited by the state.
- This ruling doesn’t affect service sales taxes, and it may reduce use tax reporting; however, this could change some time in the future.
- States in effect pre-Wayfair are: Alabama, Indiana, Maine, Massachusetts, Michigan, Mississippi, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Washington, Wisconsin and Wyoming.
- States in effect or with upcoming effective dates since Wayfair are: Connecticut, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Minnesota, New Jersey, North Carolina, North Dakota, Utah and Vermont.
- States planning to pass legislation are: Arizona, California, Florida, Kansas, Maryland, Minnesota, Missouri, New Jersey, New York, South Carolina and Texas.
- States not talking about it: Arkansas, Nebraska, New Mexico, Virginia and West Virginia.
- NOMAD states with no state-level sales tax: New Hampshire, Oregon, Montana, Alaska and Delaware.
Overall, I don’t think my ecommerce guy has much to worry about. If he has nexus, I’ve got his back with QBO and Shopify. That’s what being a trusted advisor is all about.
Editor’s note: This article was originally published on the Firm of the Future blog.