If your company makes sales out of state you should read this.
In June of 2018, the U.S. Supreme Court concluded in South Dakota v. Wayfair, Inc. that physical presence is no longer required to establish sales and use tax nexus. The language used in the Court’s decision prompted states to individually interpret and implement laws that created legal obligations for remote sellers to collect and remit sales tax in the respective state. It is understandable that the above decision may confuse and overwhelm some small business owners that operate in states other than Illinois. Our State and Local Tax Team has outlined some action items businesses can use to evaluate their operations under the scope of Wayfair:
- Understand what it means when we say Physical Presence is no longer required to create sales and use tax nexus. You no longer have to physically be in a state to be legally required to collect and remit sales tax. If you are selling items online to other states, this could trigger a sales tax filing requirement. Most states have set a threshold stating if a business has over $100,000 of sales in their state or 200 separate annual sales transactions in their state, that the business has a sales tax filing requirement and must collect and remit sales tax because they meet or exceed the stated thresholds.
- Know that all states DO NOT use the same threshold. Each state has the right to set their own threshold. A majority are using $100,000 of sales or 200 individual transactions in a state but this is not consistent and should be evaluated for every state you sell in.
- Assess your business’s multi-state activity. Gather your sales information for the year and determine where your sales are. Once you know where your sales are you will be better equipped to have sales tax registration and filing discussions.
The sales tax landscape is evolving; with that, we assume most businesses’ processes, as they relate to sales tax filing, will evolve too. Following that, and as your business decides to delve into multi-state sales tax compliance, comes a host of other intricacies which leads to the next action item.
- Ask for help. You are not expected to be a sales tax expert. If you feel your business is affected or may be affected by these changes in sales tax filing, call us. We are more than willing to help you weed through the minutiae and come up with a multi-state sales tax filing strategy that is manageable for your business.