Berntson Porter Coronavirus Resource Center Details

Newsletters

LIKE WHAT YOU READ? Share this article :

The Sales Tax World is Changing This June

|

Currently, a business must have a physical presence in a state in order to create nexus and a sales tax collection and filing requirement, based on the 1992 Quill Corp. v. North Dakota decision by the U.S. Supreme Court.

However, on April 17th the U.S. Supreme Court heard oral arguments in a case that has the potential to overturn this physical presence requirement. If that happens, states are expected to aggressively assert nexus on out-of-state businesses selling to customers in their state. For businesses that are not registered and collecting, there is the risk that they could be assessed for sales taxes which they never collected and this could potentially be applied retroactively.

The current U.S Supreme Court case is Wayfair v. South Dakota and at issue is whether South Dakota can assert an economic nexus threshold (sales above $100,000 or 200+ transactions in South Dakota) on out-of-state businesses with no physical presence in the state. A ruling is expected in June 2018. Much has already been written on the various legal arguments and potential ways the court may rule.

While this provides interesting reading, our focus today is on what businesses can do now to prepare for these changes.

If Quill is overturned, businesses may need to quickly decide between registering and collecting in multiple states or ceasing to sell in certain states. In order to make these decisions, businesses will need robust sales tracking and recordkeeping systems in place to make the changes. For example, businesses will need to know on a relatively real time basis:

  • Details of their sales revenues, including full shipping address and ship from location (if multiple warehouses) and tax exemption status.
  • Whether Resale/Exemption documentation has been collected for all applicable sales which meets the specific state requirements where the product is delivered.
  • Details of their state revenues by line item, as some products may be taxable in one jurisdiction but not in others. For example, the taxability of shipping/freight charges frequently vary depending on whether they are separately itemized, marked up or relate to exempt sales.

Once the decision is issued, businesses who have prepared will be able to quickly assess what their sales are in any given jurisdiction in order to determine when filing is required. Business who have all relevant resale/exemption documents for all states will be able to prove lower taxable sales if the ruling is retroactive. Finally, the ability to track revenues in each state by line item will ensure that any non-taxable portions are excluded from the taxable price.

Depending on the outcome, there are several options that may be available. Congress or the states may provide some relief legislatively or there may be Amnesty or Voluntary Disclosure programs to help businesses become compliant. Finally, automation or third party collection/remittance services may also ease the burden on businesses. We will explore these topics in more detail as the situation develops.

Even if the Quill decision stands after the Court’s review, many states are implementing use tax notification and reporting requirements that will change a business’s annual filings and diligence responsibilities.

If you have any questions, please contact your tax professional at Berntson Porter & Company, PLLC at 425.289.7990.


     

New Name, Same People and Service You’ve Known for Years.

Berntson Porter is excited to announce that we are now part of CBIZ & MHM (Mayer Hoffman McCann P.C.). Together, CBIZ & MHM are one of the nation’s Top Ten accounting providers, and Berntson Porter is honored to be joining them. We are pleased to be able to offer the same people and the same service you’ve known for years under a new name: CBIZ Berntson Porter. Please click here for more information.