Sales Tax Reform: Don’t Be Surprised by the Changes

November 15, 2018 | Article

By David Casper and Lauren Taylor

Until recently, many businesses weren’t overly concerned about sales tax. They knew they needed to collect and remit in the state in which they resided, but beyond that, their compliance burden was limited. That all changed with the SCOTUS decision in the Wayfair case.

Now, it is possible for states to collect sales tax from out-of-state sellers without a physical presence in their state. Newly enacted rules based on the Wayfair decision can require a business to register and then be subject to collection and remittance of sales tax back to the state. States have been passing new sales tax laws, or considering such laws, using the volume of sales and number of transactions to determine the need to remit sales tax back to the states. The timeline for compliance is tight as many states had an October 1, 2018, compliance deadline, while others have opted for January 1, 2019. There are still a few states that have not responded to the recent Wayfair decision.

No matter what you sell, if you reach a certain volume of sales or number of transactions, your compliance burden may change—without having a physical presence in the state. Below are a few examples of how sales tax reform is impacting businesses.

Service Across State Borders
A company that makes road maintenance trucks sold more than 200 trucks and numerous truck parts online, with sales across the nation. Employees would drive the trucks to their new owners and provide training on how to operate them. The business was only collecting and remitting sales tax in the state where they were physically present. By delivering the trucks, the business had unexpectedly created nexus and therefore a sales tax connection.

Sales Volume Thresholds
A business that provides rental car companies with supplies to clean the rental car upon return sells most of their products online, and after a review of their situation, determined they meet the sales tax thresholds and will need to register in multiple states.

A company with a bulk of their business being resale also offers a “buy direct” option. Because of this “buy direct” option, their total gross sales were enough to trip them over the dollar threshold making them subject to collect and remit sales tax in five additional states.

Or, take the wholesale parts company that ships products all over the country. They don’t have a website, but people call them directly to order their product. A portion of the sales go to wholesales and another portion goes to end users. The total dollar amount got them over the threshold and now this business has a compliance burden of filing in 22 additional states every month.

Another business, traditionally a wholesaler of products to grocery stores, recently started selling direct to consumers through Amazon. Because of the new direct sales, they are subject to additional sales tax compliance.

Number of Transaction Thresholds
An online retailer makes sales more than $600K annually. Each transaction is roughly $50-$60. However, due to the number of invoices in various states, this company now needs to register in ten additional states.

Taxability of Software
Software is taxable in some states but not in others. Knowing the thresholds and whether you’re over them in particular states can help reduce compliance filing failures.

Future Considerations
Prepare yourself for sales tax reform. We encourage businesses to:

  1. Educate yourself on what’s happening as a result of the recent Wayfair case.
  2. Review your situation to determine if you might have unmanaged and/or accounted for risk.
  3. Contact your Eide Bailly professional or a member of our State and Local Tax team to request a Sales Tax Risk Assessment.

Our team is available to help walk you through the new rules and determine where and if you have filing responsibilities.

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