After Wayfair Ruling on Sales Tax, Preparing for Holiday Retail Surge
The retail world was flipped on its head in June when the Supreme Court decided the case of South Dakota v. Wayfair. By ruling in favor of South Dakota, the court declared states are no longer limited to requiring only in-state retailers to collect and remit sales tax, but can also impose requirements on remote retailers, including e-commerce sellers.
A growing number of states have responded, with more than 30 adopting new requirements that have (or will) compel remote retailers to collect sales tax if they reach a certain threshold of sales or revenue. In many states, these rules are already in effect, with others coming in the near future. By mid-2019, it’s possible every state with sales tax will have a remote seller collection law.
Retailers will be on the hook for calculating and filing more taxes in more states than ever. With the already stressful holiday season upon us, companies need to scramble to ensure they are in compliance. Here’s what retailers can do to prepare:
Identify New Tax Obligations
South Dakota’s law held remote sellers liable for tax collection if they have either $100,000 in sales or 200 individual transactions to in-state residents. While there's no magic to those numbers, many states, in enacting their own remote collection rules, have copied them.
Once a retailer surpasses a state’s threshold, it may become immediately liable for collecting and remitting sales tax. Failing to do so exposes your company to audits and the accompanying tax, interest and penalty liability. The first step to avoiding this is knowing where you are on the hook.
States are taking different approaches to counting sales revenue (do you include sales to exempt customers or exempt sales for resale?) as well as transactions (is an invoice with multiple lines considered one transaction or many?). Knowing these distinctions is important, and there are resources that explain each state requirement in detail.
Retailers should keep track of sales volume in any state with a remote seller collection rule. With the holidays upon us, sales are bound to increase, and should you cross the threshold in one of these states, you should be ready to collect sales tax. Depending on state law, your requirement may be immediate.
Centralize and Automate Compliance Processes
Once a retailer knows it has a new sales tax collection obligation, it’s important to be able to do something about it. Even the most robust internal compliance and IT teams may not be equipped to manually collect, remit and file sales tax in all these new states. The stress a busy season like this one puts on even the best internal processes will complicate manual compliance efforts this year and beyond.
This is where tax technology comes into play. Today’s pace and rate of regulatory change is unprecedented. As their sales tax footprint grows, retailers will find themselves required to know and understand sales tax rates, rules and filing requirements across a large and growing swath of the country. For retailers with a workforce spread across multiple geographies and IT teams devoted to ensuring a positive web shopping experience, using a tax technology solution to create an accurate, scalable and centralized tax function is the optimal choice.
As the holiday season brings with it increased online traffic, retailers must understand their expanded tax compliance responsibilities arising out of the South Dakota v. Wayfair decision and formulate a plan that ensures compliance now and into the future.
Charles Maniace is the director of regulatory analysis at Sovos, a global provider of software that safeguards businesses from the burden and risk of modern tax.
Related story: Will Supreme Court Change the Foundation of Sales Tax?
Charles Maniace is the director of regulatory analysis at Sovos, a leading global provider of software that safeguards businesses from the burden and risk of modern tax. An attorney by trade, Chuck leads a team of attorneys and tax professionals responsible for all the tax and regulatory content that keeps Sovos customers continually compliant. Over his 15-year career in tax and regulatory automation, Chuck has provided analysis to the WSJ, NBC, Bloomberg and more.