The new way we are doing business is changing sales tax laws across the nation. With the rise of online services and retailers, there has been a rise of companies doing business outside of states in which they have a physical presence. The recent U.S. Supreme Court ruling for South Dakota vs. Wayfair, inc. has paved the way for states to require remote out-of-state sellers to collect sales tax from customers. For consumers, this means a slightly increased total when they check out on Amazon, but for many online business owners, it turns them into tax collection agents.
South Dakota vs. Wayfair, Inc.
In 2016 South Dakota passed laws requiring online sellers, even those who do not have a physical presence in the state, to collect South Dakota Sales Tax if they made more than $100,000 in gross sales or made over 200 individual transactions in the calendar year. The state then sued online retailers, including Wayfair, who did not collect the South Dakota Sales Tax. The Supreme Court ruled in favor of South Dakota in June of 2018 and opened the doors to changing domestic tax law and compliance across the nation.
Sales Tax is Changing in Most States
32 states are already passing laws regarding remote tax collection and companies that do not comply with these changes run the risk of monetary penalties and other serious consequences. The previous standards set by states required that a company prove a physical presence or a “nexus” in each state, but now a standard of an “economic nexus” where the company collects revenue from consumers of the state that exceeds an established threshold is now enforceable. This revenue threshold usually ranges from $100,000 to $1 million in annual sales and applies to online and remote sellers. Some states have even lower thresholds, for example Washington state’s threshold is $10,000 a year, and if the seller does not “voluntarily” charge and pays sales tax, it has to comply with requirements to disclose consumer’s purchase details to the state. Because the sales tax codes vary from state to state, it is important for businesses to understand the requirements for each state they do business in.
Your Business Can be Impacted if:
- You sell online or using mail order
- You sell in multiple tax jurisdictions
- Your business is registered in multiple states
Your Company Can Be Most-at-Risk if:
- You sell at least $500,000 per year in tangible goods to “end users” in multiple states
- You sell at least $250,000 per year in multiple states that are growing rapidly
- You sell more than $100,000 per year in any one state
NOW CFO Can Help Your Business Comply With the Changes
Companies will need to assess their current and projected revenues in each state to make sure they are complying with new tax codes, implement systems to identify the jurisdiction of each invoice, register in states where necessary, establish processes and software management for sales tax and more. In general, every business needs to identify the risks, costs, and benefits of getting compliant for each state in which they do business. At NOW CFO we have the tools and expertise to help, we can prepare a Sales Tax Roadmap unique to your company including a nexus overview, taxability matrix, and exposure estimate and a plan for moving forward.
Don’t let the new sales tax rules derail your business, get your sales tax roadmap and move forward on your tax planning with confidence. ■