CPA.com Blog

CPA.com

Supreme Court overturns Quill, States can now charge for internet sales

In a 5-4 decision issued June 21, 2018, the Supreme Court ruled that internet retailers can collect state sales tax in states where they have no physical presence. Today’s ruling in South Dakota v Wayfair overruled the longstanding Quill decision that had been in place since 1992 and used a dormant commerce clause power that made physical presence essential in claiming sales and use tax.

“The Internet revolution has made Quill's original error all the more egregious and harmful," Justice Anthony Kennedy said in delivering the opinion. "Quill Court did not have before it the present realities of the interstate marketplace, where the Internet's prevalence and power have changed the dynamics of the national economy. The expansion of e-commerce has also increased the revenue shortfall faced by States seeking to collect their sales and use taxes, leading the South Dakota Legislature to declare an emergency."

This ruling is by no means the end of the confusion. Businesses will now have to be ready for the SUT rulings in Congress and the states. As the Tax Foundation states in their interpretation of today’s ruling:

In the states, a reminder, 31 states currently have laws taxing internet sales. Today’s decision will certainly change how states look at these laws but we may see states trying to see if their versions could survive even if they are less simplified and direct than South Dakota’s law. This ruling is not a blank check for states. The Court specifically observed that South Dakota’s law, and its tax laws generally, minimizes the burden on interstate commerce. Other states should craft their laws accordingly.

On Tuesday, July 10 at 2pm in our webinar “Navigating a Changing Sales & Use Tax Environment”, we will be discussing the impact of the Wayfair decision on sales and use tax and how CPA firms can help their clients maintain compliance in this ever-changing environment. Our event is free and is eligible for 1 CPE credit.

CPA.com

Keeping Up with SUT: Three Market Drivers Impacting Sales and Use Tax

The way we do business is changing and so is the way states and local governments collect sales and use taxes (SUT). SUT rules and regulations have grown so complex and understanding these ever-changing laws is now another burden on businesses. Companies need to make sure they are keeping up with SUT changes or else risk penalties.

Three market drivers are impacting the complexity of SUT:

  1. States aggressively looking for additional tax revenue
  2. Proliferation of e-commerce and businesses more easily expanding into multiple states & jurisdictions; and
  3. Confusion around SUT liabilities and implications surrounding collection & remittance.

CPA firms need to know what these marketplace drivers are to ensure that their clients are SUT compliant.

Driver I: States Aggressively Looking for Additional Tax Revenue

If states could collect on all internet sales for 2017 alone, they could have collected $13billion more in tax dollars which could go a long way toward recovering their $23billion in estimated lost revenue. States are aggressively going after lost SUT with additional auditors, new technology, and new legislation.  Some of the new regulations pit the vendor against the consumer.  Colorado, for example, can now force vendors to report residents who owe use tax to the state.  The states are working to collect as much revenue as they can, but the business owners are the ones feeling the impact.

Driver II: Proliferation of E-commerce and Businesses More Easily Expanding Into Multiple States & Jurisdictions

With more and more internet vendors expanding sales into other states and jurisdictions due to the opportunity to easily and cost-effectively expand product sales and services, the definition of “physical presence” is also expanding.  In another move to reclaim lost tax dollars, states are frequently evaluating and revising their nexus determinations which have triggered new and complex state and local SUT obligations for businesses. One example is the “cookie nexus” enacted by Massachusetts and Ohio which attempted to broaden nexus to include internet retailers that use cookies on their websites that have sales of over $500,000 in the state and have in-state software. Look for other jurisdictions to try similar approaches to retrieve what they believe is lost sales and use tax revenue.

Driver III: Confusion Around SUT liabilities and Implications Surrounding Collection & Remittance

There are now more than 60,000 distinct sales and use tax rates across the states in over 11,000 local jurisdictions nationwide. But all these rules bring along more confusion and complications that can leave companies vulnerable. They are now being asked to understand the SUT requirements for every jurisdiction where they have done business. An activity that generates nexus in one domain may not produce it in another area. Not understanding these nuances and its impact on collecting and remitting sales & use tax can be costly.

Ever-changing SUT regulation has made it more challenging for business owners to keep up and comply with these regulations. Understanding these marketplace drivers can help CPA firms advise and consult their business clients to navigate this changing SUT environment.

Download our latest whitepaper and attend our webinar, Navigating a Changing Sales and Use Tax Environment to learn more about these market drivers and how your firm can take advantage of the sales and use tax service opportunity.

Michael Trabold

Director, Compliance Risk, Paychex

Building Strategic Partnerships: 5 Regulatory Issues to Monitor for Your Clients

There are more regulatory demands on businesses than ever before and they’re continually shifting, making it difficult for your clients to keep up. There’s no doubt you can help your clients prepare for and manage tax-related issues, but how up-to-date are you on the other regulatory challenges they’re facing? The current regulatory environment presents an opportunity for accountants looking to provide clients with more strategic guidance in every aspect of their business.

Five hot regulatory topics currently on the horizon are:

1. Payroll tax and tax reform – Business owners may still be unaware of all the implications of tax reform. For example, the new 20 percent pass-through deduction could prove advantageous for freelancers and gig workers in the form of healthcare and other benefits. Additionally, the updated W-4 anticipated for 2019 is expected to automatically assign a number of allowances based on marital status. Many states are also reacting to tax reform with their own regulations. For example, New York State will phase in an optional payroll tax in 2019 which employers must opt into by December 1, 2018 and California is opening two new charitable funds supporting health care and education donations which can be claimed as philanthropic gifts for both federal and state taxes.

2. Healthcare reform – Though tax reform brought the individual mandate tax penalty down to $0 as of 2019, Applicable Large Employers (ALEs) are still required to offer adequate and affordable coverage to full-time employees. Only non-ALEs who offer no group plan currently qualify for Qualified Small Employer Health Reimbursement Arrangements. Accuracy in filing is essential as employers may receive furnishing or filing penalties for late, incomplete, or inaccurate Forms 1094-C/1095 C and they must research and identify any errors in filing and make corrections in response to 226J letters sent by the IRS.

3. Employment law – New regulations are in discussion for paid family leave, paid sick leave, immigration, overtime, tipping, minimum wage, and other wage issues including pay equity. Especially important in the gig economy, the Wage and Hour Division has continued to work with the IRS and many states to combat employee misclassification and to ensure that workers get the wages, benefits, and protections to which they are entitled. The DOL has entered into partnerships with 37 states to work together on misclassification to more effectively and efficiently address this significant problem.

4. Retirement plan administration – HSAs and new and upcoming state and municipality retirement programs are creating different opportunities to save for retirement, but they also come with their own set of rules and regulations that business owners need to understand and comply with to make the most of these plans and to determine what retirement benefits will best attract and retain quality employees. Technology advancements are also impacting the retirement industry. As part of the important ongoing conversation, Paychex will take part in a session at AICPA ENGAGE 2018 discussing where “Robo” technology fits in the defined contribution world today, and how it will support the changing needs of sponsors, advisors, participants and CPAs, especially with the recent regulations and intensified scrutiny from the DOL and the marketplace. “The Role of ‘Robo’ in Defined Contribution Plans” will take place on Thursday, June 14th, 2018 at 11:15 a.m.

5. Cybersecurity/Privacy – All 50 states now have data breach laws and a federal standard may be upcoming. It’s in your clients’ best interest to protect themselves against cyberattacks and data breaches and it’s also important that they respect the privacy of their customers and prospects as they incorporate digital marketing tactics. Though GDPR is a European regulation, it impacts many U.S.-based businesses. California is also proposing a right to privacy law which regulates the collection and use of personal information.

Though at first glance you may wonder how these regulations directly play into your role as an accountant, each piece of regulation and your clients’ compliance with it impacts their business success and your ability to accurately assess their finances for planning and tax purposes. It can be difficult to find the time to refresh your knowledge on these topics in your hectic daily life, but I will be breaking these regulations down for you at AICPA ENGAGE. Don’t miss my presentation, “Top Regulatory Items on the Horizon. Are Your Clients Prepared?”, on Tuesday, June 12 at 7:00 a.m., where I’ll dive deeper into preparing your clients for these upcoming changes.

Mike Trabold is director of compliance risk for Paychex, Inc. Paychex is a leading provider of human capital management solutions for small- to medium-sized businesses.

CPA.com

South Dakota vs Wayfair: What you need to know

If you follow the news, you are aware of the upcoming oral arguments for the South Dakota v. Wayfair case taking place April 17th.  This hearing is monumental because the Supreme Court will finally address whether states can broadly require online retailers to collect sales tax even if they lack a physical presence in the state.

What constitutes “physical presence” has been largely debated and challenged as the way business is conducted has evolved since the 1992 case of Quill Corp v. North Dakota that set the precedent.

With the oral arguments quickly approaching, here are a few things that you need to know:

  • This case directly challenges the decision in Quill. The Supreme Court will need to decide if the issue of physical vs non-physical establishments extends to internet sellers.
  • South Dakota passed economic nexus legislation in 2016 which requires online merchants with no physical presence in the state to collect and remit sales taxes if the retailers’ annual sales in the state exceed $100,000, or if the retailers conducts 200 or more separate transactions in the state of South Dakota over a given year. Other states have imposed similar legislation.
  • If the Supreme Court agrees, states could receive the green light to require the collection of sales tax from internet sellers.
  • Although the oral arguments are taking place April 17th, a ruling is not expected to be made until at least June 2018.

 
If you are looking for a resource to learn more about this case, and the implications of the upcoming oral arguments, make sure to listen to the podcast that was recorded with special guest, Peggi Rockefeller, Chief Tax Officer, Vertex Inc. We will make sure to keep you posted of all the latest happenings as this potential game changing tax decision unfolds over the next few months.

Please remember that CPA.com provides information for educational purposes, not specific tax or legal advice. Information included is current as of April 1, 2018 and may be impacted by Supreme Court decision in Wayfair v. South Dakota. Always consult a qualified tax or legal advisor before taking any action based on this information.

Michael Trabold

Director, Compliance Risk, Paychex

Before and After Tax Reform: What the Changes Mean for You and Your Clients

For individuals and businesses alike, tax reform is a lot to unpack. Even if your clients can wrap their heads around the new rules, they may not know what these changes mean for their wallets. To truly understand the impact of tax reform, it’s helpful to keep in mind the pre-tax reform policies and compare the two sets of regulations.

The major business tax implications your clients need to know include:

  • A change in corporate tax rate from a progressive tiered rate, which generally ranged from 15-35, to a flat rate of 21 percent with no corporate Alternative Minimum Tax.
  • Newly instated deductions of up to 20 percent for qualified business income for pass-through entities (partnerships, LLCs, sole); but be sure to note that because the provision falls under the individual tax code, it will sunset in 2026 without additional legislative action.
  • A tax credit, ranging from 12.5 percent to 25 percent of wages paid in 2018 and 2019, for certain employers that provide paid family and medical leave to their workforce.
  • Modifications to the rules for exclusion of employee achievement awards to prohibit items such as cash and gift cards from tax-free status.
  • A reduction in the ACA’s individual mandate tax penalty to $0 by 2019. Self-insured employers and insurers are still required to report individuals covered by their plan or face penalties.
  • Businesses can no longer make deductions for settlements and costs of settlements related to sexual harassment or sexual abuse if settlements are subject to nondisclosure agreements.
  • Businesses no longer get a deduction for contributions to commuting expenses with the exception of cycling cost reimbursement. Employees still receive the tax-free benefit for the previous commuting cost with the exception of cycling – money toward cycling to work is no longer tax-free for the employee.

Individual tax provisions under the tax reform bill sunset in 2026 without additional legislative action. These changes to individual taxes, include:

  • An increase in the standard deduction to $12,000 for single filers, $24,000 for married joint filers, and $18,000 for heads of households. In 2017, deductions were $6,350 for single filers, $12,700 for married joint filers, and $9,350 for heads of households.
  • The discontinuation of personal exemptions. In 2017, the IRS allowed a $4,050 exemption per family member, including the filer.
  • An increase in the maximum child tax credit to $2,000, plus an additional $500 family credit for nonchild dependents. Phaseout thresholds have also been raised to $400,000 for joint filers and $200,000 for singles in 2018. Before tax reform, maximum child tax credit was $1,000, and the phaseout thresholds were $110,000 and $75,000 for joint and single filers, respectively.
  • A decrease in the mortgage interest deduction threshold to $750,000. Previously, the mortgage interest deduction threshold was $1,000,000.
  • A doubling of the estate and gift tax exemption to $10 million.
  • A change in moving expense deductions. While civilians used to be able to deduct moving expenses, now only members of the armed services can make this deduction.
  • The discontinuation of a special rule which allowed recharacterization of individual retirement account (IRA) contributions between Roth and traditional IRAs.
  • A reduction in the threshold for deducting qualified medical expenses to pre-Affordable Care Act levels (7.5 percent) for 2017 and 2018 only.

Changes made to the IRS withholding tables also play a role in how tax reform impacts your clients:

  • Before tax reform, the withholding rate on supplemental wages for $1 million or less was 25 percent. It is now 22 percent.
  • Before tax reform, the withholding rate on supplemental wages over $1 million was 39.6 percent. It is now 37 percent.
  • Before tax reform, the back-up withholding rate was 28 percent. It is now 24 percent.
  • Before tax reform, the amount to add to non-resident alien wages was $2,300 annually. It is now $7,850 annually.
  • Though they were eliminated, personal allowances were retained in the new withholding tables to work with the current Form W-4. Employers will need to factor these allowances in when applying the withholding.

The impact of tax reform is still evolving, stay up-to-date with the latest tax reform developments impacting both employers and employees at www.paychex.com/articles/compliance/tax-reform. The AICPA also has a host of tax reform resources at www.aicpa.org/taxreform.

Mike Trabold is director of compliance risk for Paychex, Inc. Paychex is a leading provider of human capital management solutions for small- to medium-sized businesses.

Pages