Holiday Shopping and Sales Tax Compliance

Don’t Let the Wayfair Sales Tax Compliance Risk Dampen Your Holiday Cheer

With the arrival of Fall comes the arrival of the holiday shopping season.  Stores are filling up with holiday goods, and this means that inventories are starting to build up in the stores and distribution centers.  As the orders start to pour in from online and brick-and-mortar stores, businesses will prepare invoices that need to reflect the proper amount of sales tax.  Business as usual?  Not quite this year in the post-Wayfair world, especially in those states that already have economic nexus laws on the books with collection start dates effective now through the end of the year.

Wayfair Brings Increased Sales and Use Tax Compliance Risk

As just about everyone is now acutely aware, Wayfair increased the number of states in which businesses could now have SUT liability because of economic nexus.  This has dramatically increased the risks of tax liability in more states on both: (1) the business itself in the form of unbudgeted taxes, penalties and interest, as well as (2) the key persons who run the business or who are responsible for signing tax returns and other documents in the form of criminal and civil breach of fiduciary responsibility.

What are those states with immediate Wayfair risk this holiday season? 

Here is a list of states that have economic nexus collection start dates from July through the end of the year, and therefore especially impact this year’s holiday season:  Alabama, Colorado, Connecticut, Hawaii, Illinois, Indiana, Kentucky, Maine, Maryland, Michigan, Minnesota, Mississippi, Nevada, New Jersey, North Carolina, North Dakota, South Carolina, Vermont, Washington, and Wisconsin.  Especially in larger states like Illinois and New Jersey, the Wayfair-related impact may be even more keenly felt.

What about after this holiday season?

In early 2019, several other states have announced official start dates for the collection of sales tax under the economic nexus rules:  West Virginia, Utah, Louisiana, Iowa, Georgia and Nebraska.  If you are doing business in those states, the same steps as above will need to take place. Businesses have a little more breathing room but not much.  And this is especially so since many more states are expected to announce sales tax collection start dates in the months ahead.

What if you’ve not been collecting in these states?

If you have been doing business in these states and collected sales tax because you had a physical presence in the state, then it’s “business as usual”—keep collecting and remitting.  However, if you have been doing business in these states but did not collect and remit sales tax to the state because you did not have a physical presence in that state—all that has changed.  Now, if your volume of business exceeds the minimum thresholds established in each of these states, you must start collecting NOW.

What are some of those economic minimum thresholds that trigger economic nexus? 

That varies from state to state and each state must be researched.  However, in two of the larger states listed above, —New Jersey and Illinois, for example, if the volume of business exceeds $100,000 in gross revenue from sales or the number of separate transactions exceeds 200, these states will impose collection and remittance obligations on the business in this holiday season.

Lots of Compliance Risk So Get Ahead of the Curve

As orders pour in, invoices must be prepared correctly for each state that you now have economic nexus where you may not have had it in the past.  Those invoices must get the sales tax right.  But in those states where you have not had nexus in the past, you will now need to comply with all the rules in those “new” states, and again answer sales tax questions quickly and accurately–questions like the following:

  • How do I register? Every state has different registration rules and must be researched.
  • Is the state a source state or a destination state? If the state is a source state, e.g., Illinois, the sales tax rate used by vendors for out of state sales is the Illinois rate.  If the state is a destination state, then the sales tax rate of the destination state is used to compute the tax.
  • Is the state a home-rule state? There are a handful of states, e.g. Colorado, where local districts can create their own tax rules not inconsistent with state law.  That add complexity to the sales tax computation.
  • How do I apply for exemptions? Most states have a formal procedure for obtaining a certificate of exemption from the state.  A few states do not have formal procedures but the business claiming exemption must still be able to prove exempt states with written evidence.
  • When are tax returns due? Every state has different rules as to when tax returns must be filed, often depending upon the amount of sales tax regularly collected.

With time of the essence this holiday season, businesses need technical sale tax solutions that can answer these and many other questions and be implemented quickly. Visit Wolters Kluwer.com/Sales-and-Use-Tax to get the tools and expertise you need.

AUTHOR

Jerome Nestor

Jerome Nestor, Esq., CPA, MBA-Accounting Information Systems Manager Tax & Accounting North America Wolters Kluwer Mobile: +1 847.312.5671 Email: jerry.nestor@wolterskluwer.com

All stories by: Jerome Nestor

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