Does your business thrive with online sales? If so, pay attention to this Q&A with CompuData’s Sage Intacct Consulting Manager Sandra Gromball.
In June the Supreme Court handed down its Wayfair Decision, a 5-4 decision in the case South Dakota v. Wayfair, Inc., allowing states to require out-of-state retailers to collect sales tax from customers – even if they don’t have a physical store or warehouse in the state – clearing the way for more sales tax revenue from internet purchases.
The 5-4 decision overturned a 1992 Supreme Court precedent that effectively barred states from collecting such taxes. South Dakota’s law applies only to those businesses with more than $100,000 in sales, or at least 200 transactions, in South Dakota every year. Currently, 31 states already levy online sales taxes of some sort, leaving the remaining 19 states to get moving fast to impose taxes on online retailers.
According to the Tax Foundation, some states may adopt laws that emulate South Dakota’s in every respect. Other states may adopt laws that adopt only some of the features, and that would likely be subject to further litigation. Some states may not act until their next regular legislative session, while others may never act. Congress may act to establish a minimum standard for states that wish to collect sales tax on interstate sales. A federal standard would create certainty for sellers and consumers and ensure that every state meets certain simplification guidelines. Until then, we’ll likely see more states seek the same authority as South Dakota, with some encountering legal challenges.
CompuData’s Sage Intacct Consulting Manager Sandra Gromball knows all too well the pitfalls of not having accurate tax reporting regardless if you are an online business selling retail over the Internet or a manufacturer selling products from multiple locations to multiple states. She cautions today’s businesses currently selling online to work with a partner whose sole focus is to understand and quickly implement any changes in the tax laws when it comes to developments resulting from the Wayfair Decision.
The effect of the Supreme Court’s Wayfair Decision, which removed the physical presence test as a requirement to impose sales tax nexus, will have multiple implications for states and merchants – how big is this for businesses selling online today?
CompuData’s Sandra Gromball: The larger online retailers will typically have the IT infrastructure to comply with the Wayfair Decision with relative ease. They may have a physical presence in multiple states and are already collecting sales tax where they are located. The biggest challenge is for smaller online retailers. They may have a prominent Internet presence only to be conducting their business using spreadsheets or out-of-date accounting software.
Prior to the Wayfair Decision, the smaller online retailer only had to keep track of sales made in their state. For those businesses, charging sales tax and maintaining tax records was relatively easy especially if their physical presence is in one of the 12 states with a single tax rate. The remaining states have percentages by locality which requires additional scrutiny on shipping addresses to determine the sales tax percentage to charge and the amount to pay.
What are the most critical points companies need to realize when it comes to the Wayfair Decision?
CompuData’s Sandra Gromball: By far, the most critical point is accuracy when maintaining, calculating, and paying sales tax. One mistake in calculations can result in hundreds of thousands of dollars in state fines! Not only is the online business required to charge and pay sales tax on products sold, but there may also be sales tax applied to shipping charges. Each state has its own rules and regulations for charging sales tax. Trying to keep up with sales tax laws is not for the faint of heart!
What does all this mean for accounting software decisions – how should companies move forward to navigate online sales tax requirements for Wayfair Decision compliance?
CompuData’s Sandra Gromball: When choosing accounting software, you need to feel confident that your new software has the following credentials/capabilities:
- Preferred and/or recognized by the American Institute of Certified Public Accountants.
- Detailed financial auditing.
- Seamless integration with other best-in-class solutions for sales tax automation, credit card authorization, bank transactions, expenses and more.
- Data security.
- Easy to use.
What risks are businesses taking, at this time, if they are not preparing for new compliance mandates in regards to their online sales tax management? Is now the time to establish a new set of best practices for sales tax compliance?
CompuData’s Sandra Gromball: The biggest risk, by far, is inaccurate sales tax reporting. Online sales are only increasing and states will make sure they receive their revenue from online sales. Several years ago, I had a client that was fined over $300,000 for misreporting sales tax to the State of California. This single event prompted my client to implement Avalara for its maintenance of sales tax regulations by locality. It is nearly impossible for the average online retailer to accurately keep track of the various combinations of sales tax by state, by locality, by product, and freight charges based on standard sales tax or by taxable item.
Join CompuData and Alavara for a webinar devoted to how the Wayfair Decision may impact your business!
Economic Nexus and the Future of Sales Tax: The Impact of the South Dakota vs. Wayfair, Inc. Ruling.
Date: Thursday, August 16, 2018
Time: 10:00 a.m. Pacific / 1:00 p.m. Eastern
Featured Panelist: CompuData’s Sandra Gromball
Duration: One hour
Reserve Your Seat Now