Benefits of a Wayfair Review: Avoiding Over Payments of Sales and Use Tax on Purchases
By now all businesses should be aware of Economic Nexus created in the Wayfair decision by the Supreme Court decision, and its general ramifications for online retailers. To summarize, the Wayfair decision opened the door for states to impose sales tax collection and remittance obligations on companies that conduct business in a state, regardless of whether they have a physical presence in said state. As a result, Wayfair changed the sales and use tax environment for not just remote sellers but for all players in the sales and use tax supply chain. This includes retailers, resellers, wholesalers and manufacturers. This of course makes it a necessity for all of the aforementioned entities to review the amount of business they conduct in each state and address sales tax obligations resulting from the Wayfair ruling and subsequent state-level changes. Often the most important reviews or changes involve ensuring their tax and accounting compliance systems are adequately addressing their risk for sales and use tax liability.
However, today’s post-Wayfair risks don’t just involve avoiding an audit, as serious as that may be. A nexus review can uncover missed opportunities to reduce costs to a business’ own bottom line, specifically in the area of accounts payable operations. Reviewing sales transactions between vendors in a supply chain may present opportunities to correct tax payment errors that need not be paid now or in the future.
For example, a business makes a purchase and receives an invoice from a vendor that includes sales tax.
Keep in mind that the burden of proving that a purchase qualifies for sales tax exemption rests with the purchaser. It is the responsibility of the purchaser to:
- Understand all qualifications before claiming any exemption;
- Provide the appropriate exemption certificates to suppliers; and
- Keep complete and adequate records in case of audit
If time is not taken by the purchaser to properly research said invoice, the invoice might simply be paid without proper attention to whether the sales tax was computed correctly. Better yet, a review may have determined that the vendor should not have charged a sales tax in the first place. Furthermore, lower sales and use tax rates and exemptions may have been missed.
It should be no surprise, that the more invoices that are processed in this manner, the greater the risk a business will overpay sales tax on its own purchases; thereby adversely impacting its bottom line. The problem is often exacerbated due to the fact that accounts payable staff don’t always talk to their sales and use tax counterparts – this should become a regular practice in a post-Wayfair world.
At least in the early stages of the post-Wayfair environment, many businesses are uncertain about their sales and use tax obligations. They are justifiably concerned about audits derived from past cases where sales tax was not properly collected from customers. Such uncertainly may cause them to error on the side of caution and charge their customers sales tax, just to be safe. If checks and balances are not put in place to catch such “errors”, overpayments may “quietly creep” into the accounts payable sphere and ultimately the business’s bottom line.
Wayfair Review—the glass doesn’t always have to be all “half empty”
If an accounts payable operations review is made part of a post-Wayfair nexus review, at a minimum, the business will have confidence that it’s not “leaving money on the table” with respect to sales and use tax payments on purchases. And obviously, if it is determined that unnecessary overpayments are occurring, said business can be alerted and take appropriate corrective action in the future.
Best practices should include:
Conducting a thorough assessment of a business’s current sales and use tax process:
- Wayfair nexus review
- Sales tax filing requirements
- Sales tax registration requirements
- Sales tax exemption certificate management
- Accounts payable and invoice preparation reviews
Investing in the legal, tax and accounting expertise to recommend and implement best practice solutions that will enable the business to:
- Timely meet all sale and use tax reporting and record-keeping requirements of the state
- Operate more profitably
- Position itself competitively now and into the future
- Meet its business objectives
Visit the Wolters Kluwer | Sales Tax Nexus resource page to stay current with rapidly changing nexus standards across the country.