CPA.com Blog

Judy Vorndran

Partner, TaxOps, LLC

Which states, what rates: Know your nexus

Out-of-state sellers that do not have a physical presence in states where they sell goods or services are now much more likely to be required to collect sales and use tax in such states. But in which states and at what rates?

This summer's U.S. Supreme Court decision to uphold South Dakota's economic nexus law in South Dakota v. Wayfair makes all remote sellers potentially subject to collecting sales tax. The threshold for requiring an out-of-state seller to collect and remit sales and use tax is a very "substantial nexus" within the state. With no universal, clear and complete definition of substantial nexus, remote sellers have work to do to see if they need to collect sales tax now.

What the ruling says

In June, the U.S. Supreme Court upheld South Dakota's economic nexus law in South Dakota v. Wayfair, which requires out-of-state sellers with more than 200 transactions or $100,000 in sales into the state to collect and remit sales and use tax.

This ruling strikes down the 1992 the Supreme Court provided in Quill v. North Dakota that found a state could not require an out-of-state seller to collect sales and use tax unless the seller had a "substantial nexus," or a physical presence, within the state. However, the decision falls short in defining a clear definition of substantial nexus. It only says that substantial nexus does not require physical presence and that South Dakota's economic nexus law qualifies as substantial nexus.

The takeaway

With physical presence sidelined, remote sellers will need to monitor evolving state nexus rules and determine whether their in-state activities constitute substantial nexus. While the parameters of substantial nexus in South Dakota's case are set annually at 200 transactions or $100,000 in sales, other states and local jurisdictions are applying their own rules. In Minnesota, for example, the small business exception—set to take effect no later than October 1, 2018-- is set at 100 transactions or 10 sales totaling more than $100,000 (see Minnesota requires certain sellers to collect tax on in-state sales starting October 1).

These changes may require sellers to seek new or expanded software solutions to simplify sales tax compliance and minimize the impact to business. An analysis of whether sales activities have or could create nexus and a review of taxability and exemption certificates can give businesses a baseline for sales tax compliance and ease the way to change as each new state and local rule comes down the pike.

Download CPA.com’s whitepaper Nexus is the Next Big Thing for Firms for your how-to guide on providing nexus sales and use tax study services.

Judy Vorndran is a partner at TaxOps, LLC in Colorado and is laser-focused on those areas that make state and local tax issues less taxing! She can be reached at jvorndran@taxops.com or 720.227.0093.

CPA.com

South Dakota Vs. Wayfair: What it means for your firm

On June 21, 2018, the Supreme Court voted 5-4 in the case of South Dakota v. Wayfair. This historic ruling favored South Dakota, determining that states can broadly require online retailers to collect sales tax even if they lack a physical presence in the state.

Details of the Case

This ruling overturns Quill. Quill Corp v North Dakota served as the law of the land since 1992.  This case used a commerce clause that physical presence was necessary to establish nexus.

In 2016, South Dakota passed a law requiring remote sellers to register, collect, and remit sales tax if they meet the following criteria:

  • $100,000 of annual gross revenue from the sale of tangible property, electronic products or services delivered into South Dakota; or
  • 200 separate transactions per year in which there is a sale of tangible property, electronic products, or services delivered into South Dakota.

With the ruling in favor of South Dakota, the definition of nexus has expanded to include not only sufficient physical presence, but also economic presence as a determining factor of whether an out-of-state business selling products into a state is liable for collecting sales and use tax. This decision stands to change the landscape around sales & use tax.

What this means for businesses:

This decision could potentially impact any business that sells goods remotely. Companies could be required to collect and remit sales tax in up to 45 states.

Over the next few months, states will start responding by enacting new rules and regulations. South Dakota is relatively straightforward and simplified, other states with more complex rules may have an uphill battle. These new guidelines and changes will only add to the complexity for your clients’ SUT liabilities and the collection & remittance of sales & use tax.

What can firms do now to help clients comply?

There has never been a better time to reach out to clients to increase your trusted advisor role. There may be some confusion about how to comply with these changes, and clients need help navigating them. Firms can help businesses prepare by taking the following next steps:

  • Conduct a nexus study and product taxability review. Review business activities and sales in different states and identify where there is risk under traditional, physical nexus and economic nexus.
  • Prioritize states where the company has the greatest economic presence and create a plan to register to collect and remit sales tax.
  • Evaluate technology that offers the following:
    • Calculates correct rates
    • File and remit payments
    • Maintains exemption certificates

How the Vertex Firm Advisor Program can help

In partnership with Vertex, CPA.com created the Vertex Firm Advisor Program to help firms support clients through access to SUT automation, practice development resources, dedicated account management and special pricing.

Vertex solutions are equipped to accommodate any new calculation and reporting requirements that may be enacted in the coming months.

Philip Horrisberger

Director of Channel Marketing, Paychex, Inc.

How to Help Your Clients Remain Competitive in a Tightening Labor Market

When you became an accountant, you probably didn’t consider human resource advising as part of your role with clients, but more and more business owners are turning to their accountants for guidance on every part of business success, including human capital management (HCM). In a tightening labor market, the recommendations you provide your clients are all the more important. As the country moves toward full employment, employers face the challenge of differentiating their business and job opportunities to attract a limited number of qualified job seekers who have many employment options. An integrated HCM solution and comprehensive benefit packages can play a major role in helping businesses stay competitive among job candidates and keep current employees engaged.

Employees are often a company’s most important asset and a key component to business success. While you may not be able to speak about specific employment laws and regulations yourself, as a business advisor, and someone who knows the ins and outs of your client’s business, you can recommend solutions to help clients best manage their HR activities from recruitment to payroll to time and attendance tracking and more. At the start of the employee journey, an HCM solution can help HR managers find and connect with qualified job candidates and create an efficient recruitment experience for both your client and job seekers. Once a new employee is hired, they are able to complete the onboarding process and fill out and update forms through the HCM system. This process can make many administrative HR tasks easier for them, save HR managers time, and help the business track the onboarding process while ensuring all required forms are completed. Throughout each module of the HCM solution, data is collected and HR managers can glean valuable insights to adapt and improve HR activities so that they can better meet employee and business needs.

An HCM solution can make employee’s and HR manger’s lives easier and more efficient, but comprehensive benefits packages are also an important factor in attracting and retaining quality employees. The tightening labor market and potential for significant tax savings in the year ahead have created the perfect opportunity for businesses to reevaluate their benefits offerings. Though some business owners are hesitant about investing in formal benefits programs, retirement benefits are a major consideration for current and prospective employees. Not to mention, business owners also need to plan for retirement. In a recent Paychex survey, minimizing turnover was reported as the most important reason (23 percent) for offering retirement benefits, followed closely by the business owners’ individual need for the benefit (20 percent).

If your client’s business is not in a place to responsibly offer more formal benefits like retirement, or even healthcare benefits, there are ancillary benefits that may be highly valued by potential and current employees as well. Parking reimbursements, gym memberships, and commuting costs all add up. Contributing to even some of these costs to employees on a monthly basis can go a long way, as can flexible working hours, work from home options, and increased vacation, sick, or personal time.

In addition to voluntary benefits, remind your clients to also be aware of the benefits they’re required to offer by federal, state, or local law. For example, there are currently over 40 different jurisdictions at the state and local level with paid sick leave laws applicable to private employers. Jurisdictions vary in terms of the coverage, eligibility and many other provisions under these laws. Employers who are not covered by these laws should still remain aware so that they can gain an understanding of what is standard when it comes to these types of benefits and how their benefit offerings stack up to larger employers and those in different states.

Recruiting and retaining talented employees is vital to your clients’ success. You can expand your contribution to that success by advising them on the latest HR technology and benefits trends.

Philip, Director of Channel Marketing at Paychex, is re­sponsible for the programs that support lead genera­tion from the company’s primary referral sources: banks, clients, associations, and the accounting community. Philip joined Paychex in 2002.  During his time at Paychex he has had responsibility for the company’s German subsidiary, Paychex Deutschland GmbH, and manages the acquisition of books of payroll business from accounting firms ex­iting that business.

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 watch 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.

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