In our end-of-year reporting webinar last week, two key insights emerged: The future of sales tax regulation is uncertain and faces some very real challenges. However, the regular course of tax calculation, collection, remittance, and reporting is still active, and those with a sales tax obligation need to be prepared.
What Regulations May Be Passed?
The overriding issue facing sales tax regulation these days is what to do with remote (and especially online) sellers who don’t have standard nexus in most of the states where their customers are located. States are grappling with budget shortfalls and see remote sales as a key avenue to potentially increase sales tax. While there have been attempts for years to corral some of this “missing” tax revenue, 2017 saw these attempts gain a new level of seriousness.
A big initiative this year was a tax amnesty program instituted by the Multistate Tax Commission, which ran from August through November. This program was offered to online sellers with outstanding sales tax obligations from selling in states where they had inventory nexus, such as Fulfilled by Amazon (FBA) sellers. Applicants to this program could have all outstanding sales taxes, interest, and penalties, waived by agreeing to move forward as a tax collector in states where they had nexus.
Several states introduced a novel scheme called notice-and-reporting. This is not itself a proper sales tax obligation, but is a rule requiring non-tax collectors (read: “remote sellers”) selling into the state to provide notices to their customers informing them that sales tax was not collected on their purchase, and therefore the customer is required to make up the difference to their state by remitting use tax on all such purchases they made the last year.
The seller then also needs to report these customers to the state’s Department of Revenue, so it knows whom to expect tax payments from. Currently, only Colorado, Louisiana, and Vermont have this rule in effect, though several more states are working to implement their own systems.
Massachusetts introduced a new definition of the physical presence standard that constitutes nexus by adding certain online activities, such as installing tracking software (cookies) on computers located in the state.
Since cookies are a nearly universal aspect of online marketplaces, this has the potential to catch up many more remote sellers — though it does only apply to sellers making more than $500,000 in annual sales through more than 100 separate sales in Massachusetts. This has been in effect since September, though it does face a legal challenge.
Other states took a more direct approach to existing nexus rules by passing bills creating “economic” nexus. These are direct challenges to the 1992 Quill case, wherein the Supreme Court established physical presence as the standard for establishing nexus that creates a sales tax obligation.
These states’ bills would add on to physical presence nexus a sales threshold (say over $100,000 in annual sales in the state) that would also obligate the seller to collect and remit sales tax.
Since these are direct challenges to existing law, they have been stymied by the courts, all of which have ruled against the bills. However, if the U.S. Supreme Court were to hear one of the cases – and there has been a lot of effort to get them to hear a challenge from South Dakota – it could end up completely upending the future of sales tax regulation.
But What Should I Do to Stay Compliant Today?
Discussing regulatory changes, both actual and theoretical, is all well and good. But at the end of the day, what is most important is getting ready for actual tax filings and the very busy January filing period.
As with so much of life, an ounce of prevention is worth a pound of cure: If you get prepared today, you’ll be all set for when things get busy come January.
A key first step there is to make sure whatever filings you do need to make are set up and ready to get filed. If you’re filing for yourself, this will require a lot of data management, ensuring you have the right state forms, that all your transactions are in order and the tax amounts are clearly marked.
If you are using Taxify for your filings, here are some critical actions to take now:
- Make sure all your filing information — your business information, tax account log-ins and passwords, filing frequencies — are up to date. You can do this by reviewing the Filing Info tab under Settings.
- Double check your transactions, and make sure they’re all up to date. Ensure all your orders are loaded in your account, so we can properly populate your returns.
- By the end of the day on January 11, check whether your returns are ready to dispatch, or if they’re marked as “not prepared.”
- If you have any questions, issues, or concerns, check out our Knowledge Base for frequently asked questions, or contact the support line to connect with one of our specialists.
Sales tax compliance can be a complicated game. Taxify by Sovos is dedicated to making sure you play the best game possible.
Did you miss out on our end-of-year reporting webinar? We’ve got you covered!