Identifying Your Sales Tax Risks

November 1, 2018 | Article

By David Casper and Lauren Taylor

There has been a lot of talk lately about the SCOTUS Wayfair decision. That ruling provides states the opportunity to collect sales tax from businesses making sales in their state without a physical presence. In addition, all businesses with a physical presence in one state, but sales or employees temporarily or permanently assigned in others, may have new sales tax reform filing obligations. Knowing the new rules and whether you have nexus in a state is an important first step in identifying your sales tax risks.

State sales tax rules vary, usually depending on the number of transactions and gross revenue from sales. Knowing these new nexus operational triggers is important to avoid costly penalties.

If you think you’re not impacted by the new rules, it would be best to check that belief by answering the questions below. They could indicate that you need to complete a Sales Tax Risk Assessment to more fully identify your risk areas.

  1. Do you sell products in multiple states?
  2. Do you ship your products across state borders?
  3. Are you an online retailer or software developer?
  4. Do you send employees to multiple states?
  5. Are you registered in all of the states you have customers?
  6. Do you know the state and jurisdictional thresholds?
  7. Do you have a software system helping you track sales?

If you answered “Yes” to any of the questions, you should further evaluate your sales tax risks.

For example, you are a wholesaler of parts located in Wyoming, and you ship parts to various resellers in many states across the U.S. However, you also allow consumers to call you directly to place orders. You probably have a filing obligation in this case, depending on the volume of sales or number of transactions completed directly with consumers. On the wholesaler activities, those sales made to resellers with proper sales tax exemption certificates would not require a sales tax filing obligation. However, the direct-to-consumer component adds a retailer component outside your wholesaler business that may require you to register, and then collect and remit, sales tax in specific states on the direct consumer sales.

Sales tax reporting requirements are getting more complicated. To lessen the complications, contact your Eide Bailly professional or a member of our State and Local Tax Team to learn more about Sales Tax Reform, the effects of the Wayfair decision and Eide Bailly’s Sales Tax Risk Assessment opportunities.

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