The U. S. Supreme Court ruling in South Dakota v. Wayfair, Inc. is now more than a year old. What have the states done with their new-found ability to force remote sellers to collect tax? What will they do in the future? Will this impact other taxes or just sales tax collection? These are just a few questions that are on the minds of business owners large and small in 2019.
Anecdotal evidence would suggest that many companies are aware – but still confused (and rightfully so) on what to do about multistate tax filings. A few of the knottier issues that have come up in my state tax consulting practice at HHM are as follows:
1. One-time transactions – Companies have crossed the Wayfair threshold this year in a state but don’t expect to do business there again – what do they do?
2. Physical presence nexus – the most prevalent issue that I see is that many companies have already created nexus through physical presence-whether slight or material. This begs the question as to whether prior period clean up is necessary, or register for tax purposes on a go-forward basis.
3. Sales through marketplace facilitators have generated questionnaires from various states. Marketplace facilitators (such as Amazon, ebay, Etsy and others) are frequently audited by states. Smaller companies that use these large facilitators are then being contacted and informed of their tax registration and reporting responsibilities. In these cases, who has the sales tax collection responsibility – the facilitator or the company that you are working with, and what are the mechanics of making this work on a state by state basis?
4. Registering for one tax but not others – I commonly see companies register for sales tax or state income tax without reviewing whether they should be registered for both.
5. Jumping to conclusions about taxability – Many companies (in this service-based economy) assume that no service is subject to sales tax – anywhere – and fail to register and report the correct taxes.
These are just a few of the issues that have to be worked through on a state by state basis. It requires reviewing state laws and regulations (both current and prior) and company activity in the state (current, prior and future). If you need assistance with state tax planning please contact a tax professional at 423-702-7939.