Sales Tax Reform: Clarifying the Notice and Reporting Requirements

September 18, 2018 | Article

The Supreme Court’s decision in South Dakota v. Wayfair has prompted a new focus on state and local tax compliance. For an existing business, the decision to register, report and comply as the states reposition their tax reporting requirements to fit Wayfair is extremely important, but not always easy to understand.

What should be done? Registration and immediate compliance may be accompanied by consequences such as penalties and interest, depending upon how each respective state addresses sales tax reform. Most states have already passed legislation to address how remote sellers should comply with their updated sales tax regulations after Wayfair, but those new rules can create problems when it potentially becomes necessary for a business to report.

There is not a consistent compliance requirement for all states. For example, a few states have a notice and reporting requirement as well as a sales tax economic threshold. A notice and reporting requirement is a state mandate for any remote seller that does not meet the nexus thresholds. Said state must post a notice on their website and submit a report each year summarizing which sales made into the state did not have a sales tax charge imposed. Below is a case example of how the timing of collecting and remitting sales tax becomes a burden upon a remote seller.

A South Dakota remote seller had shipped over $100,000 worth of products into the state of Washington over a 12-month period. This entity decided to wait until the Wayfair case was concluded before registering in any state and complying with sales tax reform. Once the Wayfair decision was made public, they:

  • Placed a notice on their website stating that sales tax had not been collected.
  • Notified customers that sales tax was not collected.
  • Reported sales to the Washington Department of Revenue.

However, under their approach, they would not be identifying themselves to the state of Washington until they fulfilled their reporting requirements at year-end.

Let’s look at Washington’s position on reporting. Effective August 1, 2018, out-of-state retailers with over $100,000 in sales into the state of Washington must collect and remit sales tax. If an out-of-state retailer waited on the Wayfair decision and did not report or collect tax prior to August 1, they may still be subject to the fines for not reporting properly in the January 1, 2018 through July 31, 2018 period. Even if the retailer registers to collect tax after August 1, they still must complete their notice and reporting requirements for January to July. Failure to comply with both Washington’s notice and reporting requirements and the sales tax nexus reform may result in penalties and interest being assessed.

Businesses, particularly online retailers, are contemplating what they should do as they face compliance with the different methods states are implementing to address the Wayfair decision. If you have questions regarding next steps as you navigate through uncharted sales tax reform, contact your Eide Bailly professional or a member of our State and Local Tax team to help decrease the penalty risks related to post-Wayfair sales tax reform.

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