States no longer need nexus for you to become their sales tax agent!
In a landmark ruling June 18, 2018, that has been years in the making since the rise of online shopping; the U.S. Supreme Court has now opened the floodgate of sales tax collection statute modification and enforcement across the country. According to the Supreme Court Opinion in SOUTH DAKOTA, PETITIONER v. WAYFAIR, INC., ET AL. it is estimated that the current statute and precedence “cause the States to lose between $8 and $33 billion every year. In South Dakota alone, the Department of Revenue estimates revenue loss at $48 to $58 million annually...”
Seems obvious, and almost uncompetitive for local sellers but this isn’t just about e-commerce firms. How does this impact your business engaged in interstate commerce? Some of the scenarios you could be facing include:
- If you engage in e-commerce or have an order desk and out of state customers
- A customer finds you online or from a trade show contact
- A customer sourced your information from an old industry directory found propping up a computer monitor somewhere in their plant
The rules of sales tax nexus are about to change, and you will be responsible for calculating and collecting those taxes. No longer is your physical presence in a particular jurisdiction the determinate of whether you are collector and remitter of sales taxes. Buyers in any given State have been notoriously lax in self-assessing Use Tax when required, so States have long looked to create nexus with Sellers to be the collectors of the taxes they are due from end user purchases and consumption.
It is a fact that it was licensed resellers in a given State that were likely the most compliant in reporting their use taxes because they often are subject to audit by their home States. The bottom line is that the “end user” tax holiday for out of state purchases is likely over, and your organization had better be ready to calculate and remit sales taxes in every state you ship product.
What To Do Now
It will take the States some time to react, but if your company has been selling across state lines and not required to collect sales taxes because of the old nexus rules, you may want to examine your current processes and automation for sales tax calculation and consider your readiness.
- Audit your historical shipping destination States, determine which States you are currently authorized to do business and collect tax in versus the ones you are not authorized.
- Update any customer exemption certificates (other reseller’s, some non-profits and governments may claim sales tax exemption)
- Examine your current business processes. Do you currently quote sales tax? Does your online commerce platform manage sales taxes in the checkout cart? Do you need to build Sales department awareness of tax requirements for quoting?
- Look at your current tax department staffing and procedures. Is it adequate to meet the higher volume demands that you may be facing soon?
"Those firms that are slow to react and find themselves under audit for interstate transactions are liable for the tax."
Is your ERP up to the challenge? Does it integrate with a persistent sales tax service that will continually monitor ever-changing State and Local sales tax rates? Does your system integrate with a service that will assume liability for the accuracy of calculation and provide automated filing services for every jurisdiction?
Why risk a lot for a little?
Those firms that are slow to react and find themselves under audit for interstate transactions are liable for the tax. The only recourse for a seller that is found to have not complied, is to attempt to collect the tax from customers, which leads to more costs, unhappy customers, and unhappy salespeople.
If your processes and systems are not up for the challenge, consider upgrading to an integrated CRM, CPQ and ERP that are up to the task. Software and services are cheap compared to headcount and compliance penalties you might otherwise face in meeting this pending challenge.
We at NXTurn can help. We are accountants and system experts that have been on your side of the desk when faced with Sales Tax Compliance challenges. We have the expertise and solutions to smooth the road ahead for your firm and help assure that the impact from the wave of nexus reform is manageable.
Call today to schedule a demonstration of state-of-the-art cloud-based solutions that will handle Sales Tax and many other challenges you may face in scaling your business.
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