Adapting to a post-Wayfair world | What your business must do to comply with its multistate tax obligations
It has been over four months since the landmark decision in South Dakota v. Wayfair was handed down. Twenty states are now enforcing some type of economic nexus threshold for sales tax collection, most of which mirror the South Dakota statute upheld in Wayfair. The following are critical issues business owners and managers need to be aware of:
- Exemption certificate compliance – The form or information required to be collected from customers to support exempt sales varies greatly amongst states. Now that remote sellers are required to collect sales tax in many more states, they need to understand the necessary information for establishing exempt sales if audited. For Streamline-member states, the uniform, multijurisdictional exemption certificate is acceptable. But not all states accept a multijurisdictional certificate – some states require a state-specific tax ID or a state-issued resale certificate.
- Service providers have unique challenges. Although states at least attempt to have some uniformity with respect to product sales, the variation between state taxation of services is often overwhelming. Service providers, especially those offering Software-as-a-Service, first need to determine where its services are taxed and, secondly, identify the applicable tax base.
- Other state taxes – Once a business registers to collect sales tax, the business may be expected to also register and pay income or franchise taxes in the state. The state will at least have the ability to identify the business, and its sales volume, since it is now registered and reporting its taxable sales. Federal protection still applies under P.L. 86-272, but remember this is limited to net-income based taxes and sales of tangible personal property (i.e., not services).
- What are some states waiting for? Notably, the largest states in the nation, New York, California, Texas and Florida, have not enacted economic nexus standards yet. Texas and California have released proposals that would become effective in 2019, but neither is finalized. In any event, businesses should be prepared to collect tax in all states where they exceed the relatively modest sales thresholds.
Please contact us if you need help addressing post-Wayfair multistate tax compliance.