How the Outcome of Wayfair Complies with Sales Tax Today
When the U.S. Supreme Court revised the outcomes of South Dakota v. Wayfair, Inc. (2018) and Quill Corp. v. North Dakota (1992), the nature of sales tax collection for remote sellers with or without a physical presence drastically changed too.
To be comply with sales tax, we need to explore the technical responsibilities.
1. What is my nexus footprint?
Even before filing, businesses should consider reviewing all historical and new remote-seller nexus provisions and standards.
All businesses must confirm their sourcing mechanism for sales to determine whether they exceed thresholds. For example, retail companies that follow a remote-seller provision use “destination-based sourcing.”
If a business surpasses the threshold, they are obligated to collect and remit sales tax and file sales tax returns.
Each state has varied provisions in terms of effective dates and thresholds. Be aware of your state’s circumstances and communicate with your tax advisors if you are unsure.
2. Are your sales taxable?
Some states are subject to sales tax, while others are not. Check your current state to find out if exemptions from sales tax apply.
For example, retail companies selling tangible personal property are subject to sales tax.
3. How do I be compliant?
A business should always document exemption certificates.
– Applying for a resale exemption certificate, this allows items that are purchased to be resold by the purchaser.
A business should always accurately track and source sales.
– Maintain a record of information to meet your sales tax obligation.
A business should accurately record the amount of sales tax collected.
– Incorrect and inaccurate numbers can lead to over-collecting, under- collecting, or being unable to collect sales tax.
A business should track the sales tax paid or not paid to vendors.
– Vendors may make mistakes. Make sure that the proper amount of sales or use tax is applied.
A business should register with a state before collecting sales tax.
– Be aware of any income tax filing obligations. To avoid penalties from prior-period exposure, businesses may find tax amnesty programs useful.
4. How do I file sales tax returns?
A business can file sales tax returns electronically with compliance software. This process can be finalized through accounting firms, on their own, or a third party with automation services.
5. What are the potential consequences of sales tax noncompliance?
The short answer is criminal penalties. You can avoid this all together just by complying with your chosen state’s nexus provisions.
Whether you’re a remote business with or without a physical presence, maximizing compliance should always be on your agenda.