Over the past 10 months, United States sales tax laws have changed dramatically for online sellers (both domestic and foreign) that supply customers in America.
On June 21st, 2018, the US Supreme Court discarded the physical presence requirement sales tax nexus in their landmark Wayfair ruling. Since then, we have experienced a great deal of changes to how states calculate and collect sales taxes. Many of these changes have been negative, but you may be surprised to hear that some of them are positive.
We hosted a LIVE webinar with on Tuesday May 14th at 4pm CST time (2pm pacific standard time/PST) with Michael J. Fleming from Sales Tax and More to discuss the latest updates and what you need to know as an online seller or eCommerce accountant.
Watch the LIVE RECORDING of Michael J. Fleming Wayfair Webinar below:
Michael J. Fleming
When it comes to sales tax and the curly questions that tend to arise, we often turn to Michael J. Fleming for support – his depth and breadth of sales tax knowledge is incredible. Throughout the past year, Michael has supported Amazon FBA sellers throughout the US and abroad to help them meet their tax requirements and understand how their compliance obligations are changing.
Prior to founding Sales Tax and More, Michael spent close to a decade working with a prominent accounting firm that focuses exclusively on sales tax. During this period, he became one of the country’s leading authorities on state tax issues such as nexus, dropshipping, eCommerce stores and complications that arise from using contract warehousing services such as Fulfilment by Amazon.
Michael is a prolific writer and renowned speaker, with a captive audience of digital entrepreneurs and leading eCommerce accountants that turn to him for advice. In this webinar, we will be discussing the latest information from state authorities, trends that his firm is seeing, his outlook for the future of sales tax and guidance on what to do as an Amazon/eCommerce seller.
For some sellers, there may be nothing that you are required to do – but other merchants have major changes coming up. Here are just some of the topics that we will be covering:
- What is Wayfair and how did the supreme court ruling change the playing field?
- How are the States responding?
- Is there any good news for Amazon sellers?
- What about if you sell on Shopify or your own website?
- Are states pursuing noncompliant sellers?
- What should sellers do?
- Strategies and tips for keeping compliant without paying too much sales tax.
- Where the sales tax market is trending.
Why does sales tax matter?
It all boils down to a concept called ‘nexus’ – which refers to a link or connection. In the context of sales tax, nexus involves having an economic presence in a state that requires you to register for state taxes and comply with local regulations.
Nexus can be triggered by selling products to customers who live within the state (destination-based nexus) or by storing your goods in Amazon’s FBA warehouses (physical presence nexus/origin-based). This is a broad stroke definition that covers most Amazon FBA sellers.
So, what are the changes? What are the takeaways? More importantly, why should you take the time to listen to what he had to say.
First things first, what is nexus?
Let’s start by giving an explanation of what Nexus is. At Sales Tax and More we use the word “nexus”, in what feels like, every other sentence. Nexus is “A link or connection with a state, which must be present before a state can require you to collect its taxes like a sales or use tax, or pay its taxes like an income, franchise, use tax, etc.”
With the definition of nexus understood, let’s dive into understanding our current relationship status with sales tax in a post-Wayfair world.
Let’s go to court!
How did we get where we are today? What legislation brought us to this rapidly changing ever confusing world of sales tax? Touching briefly on some of the high points brings us to a small handful of meaningful cases. Those cases are…
First and foremost…
South Dakota v. Wayfair, Inc 585 U.S. (2018)
Overturned–Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992), and National Bellas Hess v. Department of Revenue, 386 U.S. 753 (1967)
This determined that physical presence is no longer needed to create nexus. Meaning that economic nexus heavily comes into play.
National Geographic v. Board of Equal., 430 U.S. 551 (1977)
This case determined that the taxable activity does not have to relate to the nexus creating activity.
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Tyler Pipe v. Wash. Dept. of Rev., 483 US 232 (1987)
This case determined that third-parties who establish or maintain a marketplace can create nexus.
Complete Auto Transit, Inc. v. Brady, 430 US 274 (1977)
This said that a state can tax interstate commerce directly.
So what does this all mean, when do you need to worry about sales tax? The short answer is… When you have nexus, what your sell is taxable, and your exposure is material worry about sales tax. However, let’s get more specific.
It all starts with nexus. No nexus = no responsibility.
Do you have economic nexus? If you aren’t sure you’re not alone. For economic nexus, you do not have to have a physical presence. It can be based on sales or transactions, non-taxable sales are included in many states, and it does not override physical nexus. We have laid this all out on a chart that you can view here.
Do economic nexus thresholds exist?
Yes, they exist. Currently, there are only 4 states that DO NOT have some sort of threshold. They are Arizona, Kansas, Missouri, and Florida. We are also starting to see a trend away from transactions as a threshold by the states. We’ve created a chart with an entire list of these thresholds that you can view here.
What does prospective enforcement look like?
When states are enforcing this they are looking back to the effective date. Some of the effective dates are getting old, meaning more liability for you. So our advice? Don’t procrastinate. Take action advice, get what you need taken care of, and sleep a little better at night. Your can approach this on your own or ask for help moving forward.
States are getting aggressive. We’ve seen some developments where a couple of states like UT and SD are contacting sellers to ask about their activities. . We expect more states to follow and that they will get more and more creative with their approach.
Another new trend we are seeing
Some states are eliminating affiliate or click through nexus as they implement economic nexus, but not all states, and since this is a type of physical presence some states will go back 7-10 years. Click through nexus is when your allow people to steer your business and then your pay them a fee, commission or something else of value.
Use TaxNotice and Reporting Requirements
Don’t ignore use tax notice and reporting requirements. Use tax is a tax on purchases due by the buyer when sales tax is not collected. The notice and reporting requirements are a series of notices that the seller is required to provide the buyer saying the buyer is responsible for paying the tax directly to the state. If your miss any of the notices the penalties are crazy high.
We are seeing some states eliminating notice and reporting requirements -IE WA & RI both on 7/1/2019. However not all states have, so beware of OK & PA at least for now. Although Puerto Rico is not a state it still has draconian fees for not complying with notice and reporting requirements. We’ve created a use tax and reporting requirement chart so you can view everything in one place here.
Light at the end of the tunnel
If you are a seller who sells through a marketplace we have some good news! Sites like Amazon, eBay, Walmart, and Etsy are starting to collect tax for you. So far about 26 states have passed legislation requiring marketplace collection and we suspect by the end of next year nearly all states will have done so. Currently, Amazon is collecting in 12 states, eBay is collecting in 7 states, Etsy in 12, and Walmart in 9. Be Aware that this means your sales outside of a marketplace will become the prime target.
What does the future hold?
Let’s start with the good news! By next year Marketplaces will be collecting sales tax for you. This makes your life much easier if you only sell on a marketplace. However, the next 2 years will get increasingly uglier for companies that sell through their own websites or over the phone. States will beef up their discovery units and increase their enforcement activity.. Keep in mind that marketplaces may also be collecting now but past exposure will still be an issue for Amazon sellers. States will also look for economic nexus, but they will stumble across physical nexus and may make examples out of companies requiring years of back taxes, penalties and interest.. It’s important to do what you’re doing now. Educate yourself and then take action.
So what do you do now?
Sellers should register whenever there is nexus, what they sell is taxable, and the exposure is material.
For more questions reach out at email@example.com If you’d like to view the webinar and dive deeper into all of this check it out at ……..
We provided attendees with handouts that identify all the states where marketplaces are planning to collect sales tax and whether Amazon, Etsy and eBay are complying with the laws. We also provided the most recent information on the economic nexus rules for each state where they apply.
Following on from Michael’s presentation, we hosted a Q&A session where you had a chance to gain insight into your most pressing sales tax challenges.
Thanks for coming!
This webinar was a must for all e-commerce sellers that do business in the United States – whether through Amazon, Shopify or another sales channel.
By attending this webinar, we hope that you gained insight and clarity into what these changes mean for you and where your business fits into the bigger picture.
You can re-watch the LIVE RECORDING of the webinar here.