After a long year, most businesses see the Fall as the time of year to wrap up various projects and make a final push on sales. A small portion of businesses are considering tax planning as part of their end of the year process. An even smaller percentage of businesses are taking steps to guard themselves against changes in sales tax laws. Here is what you need to know and do to decide whether changes in sales tax laws will affect your business.

By way of background, the United States Supreme Court in South Dakota v. Wayfair decided to throw out the old standard of a business needing to be physically present in a state to collect sales tax in the subject state. The new standard is an economic nexus one. States may require an out-of-state seller to collect sales tax if the seller makes a certain number of sales to customers in the state within a certain period of time. Even if the number of sales threshold is not met, states may still require a seller to collect tax if the seller sells a minimum dollar amount of sales into the state. Specific to Wayfair, the United States Supreme Court stated the $100,000 sales threshold or 200 transactions was Constitutional in requiring an out-of-state seller to collect sales tax on transactions into South Dakota if either of those thresholds was exceeded.

The reason businesses need to begin acting now and throughout the rest of this year is because various states are imposing deadlines, starting October 1, 2018, which require the out-of-state business to register for collecting sales tax on sales into the state in light of Wayfair. These states have adopted similar thresholds as South Dakota. The states will start pursuing businesses that do not register. Still other states have thresholds lower than South Dakota and are requiring out-of-state businesses to collect tax based on these significantly lower thresholds. These registration deadlines continue into 2019, as state legislatures are adopting the standard similar to Wayfair.

Going forward and as a starting point, it is highly recommended you run a report by state by year for your sales. Specifically, you will want to see the total dollar amount of your sales for each state. A separate column will be needed to account for shipping charges, as shipping charges are not always included in the amount to tax in certain states. Likewise, you will want to run a separate report for the total number of transactions by state. Once you have these two numbers for each state readily available for each year, then you must determine whether your sales exceed or are close to the $100,000 or 200 transactions. If so, then it will warrant further investigation as to the state’s specific laws on the requirements to register to collect and remit sales tax. If you are under both thresholds, some states STILL require the business to collect sales tax.

Running these reports and evaluating the thresholds will help a business to determine its exposure to certain states for potential sales tax liabilities. While registration in every state to collect sales tax may not be practical for a business to effectuate, the business can evaluate the states with the highest exposure and work down from there. A business can then objectively determine whether the administrative costs of tax collection and reporting are outweighed by the potential liability. For some businesses, paying the tax and interest out of pocket will cost less than the tax collection and reporting costs.

In conclusion, businesses must take the time to evaluate whether they are required to collect and remit tax in states they are not present. If so, registration to collect and remit tax should be done sooner than later to minimize exposure. Of course, some businesses will have to consider whether to accept the risk of not collecting in light of the administrative costs relating to collecting and remitting.

AUTHORITY

South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).

ADDITIONAL ARTICLES TO READ

Arkansas Sales and Use Tax Impact of Wayfair Decision, published September 8, 2018, by Jeanette Moffa, Esq.

Remote Sellers May Voluntarily Collect Wyoming Sales Tax, published September 6, 2018, by Jeanette Moffa, Esq.

Remote Sellers Required to Collect Louisiana Sales and Use Tax in 2019 , published September 5, 2018, by Jeanette Moffa, Esq.

Remote Sellers May Need to Collect Idaho Sales and Use Tax in 2018, published September 2, 2018, by Jeanette Moffa, Esq.

About the author: David Brennan is an associate attorney with Moffa, Sutton, & Donnini, P.A. His primary practice area is multistate tax controversy. David received a B.S. in Accounting and Finance, with a minor in Computer Science, from Florida State University. He worked as an accountant for a CPA firm before attending law school at Regent University. He received his Juris Doctor in 2013 and was licensed to practice law in Florida in the same year. In 2015, David earned his Masters of Laws in Taxation from Boston University. David worked for the Florida Department of Revenue as a Senior Attorney before entering private practice. You can read his BIO HERE. David may be contacted via his direct line of 850-250-3830 or by email at DavidBrennan@FloridaSalesTax.com.