What Retailers Should Expect for This Supreme Court Ruling

What Retailers Should Expect for This Supreme Court Ruling

Earlier in April we presented the case of South Dakota v. Wayfair in this article – a key trial that could change the law regarding sales taxes based off of the Supreme Court’s decision – and with over $13.4 billion in state revenue could have been collected from sales taxes within 2017 alone, hanging in the balance, everyone has been eagerly waiting to see what the ruling might be. Well, as of June 21st, the Supreme Court has announced its decision in favor of South Dakota, thereby granting the state permission to levy sales taxes on out-of-state sellers. For a lot of people, this ruling is sure to change the landscape for sales taxes nationwide, while retailers need to prepare themselves for the new wave of requirements about to hit them. What South Dakota’s Win Means Many states beyond simply South Dakota were eager for a ruling in favor of the challenging state – in fact, several had even gone as far as to create similar sales tax laws in anticipation of the decision, and it’s easy to see why. Now that South Dakota has won, the Supreme Court has essentially claimed that the law as it stands is enough cause for states to charge out-of-state sellers sales tax, as well as online retailers who don’t have “a physical presence” within that state. For state governments, this change will bring a windfall of new revenue, while online retailers will be tasked with the challenge of updating all their systems to collect and document sales tax from each of their customers in an efficient manner. Congress’ involvement is another eventual...
Was the Taxpayer Transparency and Fairness Act a Good Idea?

Was the Taxpayer Transparency and Fairness Act a Good Idea?

When Governor Jerry Brown signed the Taxpayer Transparency and Fairness Act into California state law on June 27th, 2017, the effective gutting of the Board of Equalization (BOE) into two separate tax agencies – the Office of Tax Appeals (OTA) and the California Department of Tax and Fee Administration (CDTFA) – garnered some mixed and apprehensive feelings from lawmakers and taxpayers alike. Today, this decision still leaves many wondering: was the Taxpayer Transparency and Fairness Act a good idea? What Is Different? Traditionally run by four elected officials, California’s BOE used to decide everything from standard tax appeal cases, to the administration of taxes statewide. And though sometimes a bit more of a sinecure, at least the officials elected often ruled more in favor of the taxpayer as a natural recourse towards reelection and securing a higher office. Today, it is the CDTFA handling sales, use, excise, and business tax administration, as well the assessment of state fees and business tax appeals, while the OTA oversees sales, use, and income tax disputes. Meanwhile, the BOE’s power has been minimized to merely managing public utility property taxes, adjusting local property tax assessments, reviewing insurance company taxes, and administrating the tax rates on alcohol and gas. Why the Change? It’s no secret that the public has been calling for changes within the BOE for a while now due to reoccurring scandals from misspending to nepotism, however, many now worry that the state Legislature’s decision to practically abolish the board – versus implementing a few audits and key policy changes – might have been potentially harmful overkill. The real reason for the...
California Sales Tax Prepayment Deadline

California Sales Tax Prepayment Deadline

After years of operating your rather successful retail business, steadily rising in profits, suddenly you receive a letter from the California Board of Equalization (BOE) (as of May 2018 now called the California Department of Tax and Fee Administration (CDTFA)) stating that your account is switched from a quarterly filer only to a monthly prepay account. First of all, congratulations, as this means that you’re making at least an average of $17,000 in taxable sales per month! Secondly, you may be wondering what a sales tax prepayment is and how to pay it. Well, worry no more! Here’s everything you need to know on prepayments and the deadlines. What is a Prepayment? While every business operating under a seller’s permit is required to pay sales taxes, as mentioned above, only businesses surpassing a threshold of $17,000 in monthly sales are required to pay through prepayments. Even then, eligible businesses should only submit prepayments if they are notified by the tax agency directly via mail. For the first, third, and fourth calendar quarters – as well as the first prepayment of the second quarter – all prepayments must be either 90% of the month’s tax liability, or 1/3 of the tax liability measure for the previous year’s quarterly period multiplied by the effective tax rate when the prepayment was made (provided you and/or your predecessor were in business during that quarter). For the second prepayment falling within the second quarter (based on sales from May 1st – June 15th), prepayments must equal either 135% of the tax liability in May, 90% of May’s liability plus 90% of the first fifteen...
This Supreme Court Ruling Could Change the Law

This Supreme Court Ruling Could Change the Law

A new South Dakota lawsuit against three big-time internet retailers has quickly climbed its way up to the U.S. Supreme Court, earning the possibility of a ruling that could change the law regarding internet sales tax. The lawsuit began when the companies Wayfair Inc., Overstock.com Inc., and Newegg Inc. contested South Dakota’s new state law that all internet businesses should now collect and pay sales tax – the three companies claiming the law to be unconstitutional by pointing to a 1992 Supreme Court ruling holding that state governments cannot force businesses to pay sales tax unless they have a “physical presence” within that state. With an estimated $13 billion in internet sales tax that could have gone to the government through 2017 alone, for both online merchants and respective state governments, the lawsuit’s ruling has a lot hanging in the balance. “In light of internet retailers’ pervasive and continuous virtual presence in the states where their websites are accessible,” argued Solicitor General Noel Francisco in court, “the states have ample authority to require those retailers to collect state sales taxes owed by their customers.” Additionally, by allowing some out-of-state merchants to avoid collecting sales taxes, the government believes it “imposes a competitive disadvantage on in-state retailers and encourages the state’s citizens to take their business elsewhere”. Nationally, all but five states collect sales taxes – 35 of those states supporting South Dakota’s side in the case, along with President Trump’s administration. Though not directly involved in the lawsuit, Amazon.com Inc., the world’s largest online retailer, will definitely be affected should the court decide on a ruling in favor of...
How to Avoid or Survive A Sales Tax Audit

How to Avoid or Survive A Sales Tax Audit

Many small and mid-size businesses hire accountants and bookkeepers with the expectation they’ll help prevent an audit. Unfortunately, it can’t be guaranteed you won’t be audited for sales and use tax. States need sales and use tax revenue to fund essential services, and tax authorities are tasked with ensuring businesses collect and remit the taxes they owe. What you can do is institute best practices, avoid common audit triggers, and position yourself to sail through an audit as painlessly as possible. Who Gets Audited Although any business can be audited at any time, certain industries are more vulnerable to audits than others because of how sales and use tax regulations impact their business. In fact, more than half of all audits in the United States target just a handful of industries: construction, food service, manufacturing, retail, and wholesale/distribution. In addition, auditors often focus efforts on businesses with a high volume of exempt transactions. Specific events, such as late filing or a dramatic change in taxable or exempt sales year-over-year can also draw an auditor’s eye. Perhaps most surprisingly, many audits are aimed at out-of-state companies with ties to the state. The more you institute best practices, the less likely you’ll raise the red flags auditors seek. Top Errors Audits Uncover There’s no one reason businesses are found liable. However, different businesses are prone to different errors, and auditors tend to scrutinize these areas. For example, retailers that sell to consumers in multiple states may not collect and remit tax wherever they have nexus (an obligation to collect). Companies that sell to non-profit entities may not properly charge those entities...
New Sales Tax Amnesty Program for Online Sellers

New Sales Tax Amnesty Program for Online Sellers

Just ahead of the busy holiday shopping season, states are incentivizing online marketplace sellers to register for tax collection and remittance within their jurisdictions. As ecommerce has risen in recent years, state and local governments are cracking down on online sellers operating within their boundaries. A new sales tax amnesty program, running from August 17 to October 17, will offer online businesses leveraging warehouses, such as Amazon’s Fulfillment centers, the opportunity to register for the amnesty without penalty of back taxes. The Multistate Tax Commission (MTC) will administer the amnesty program, with fifteen MTC member states – Alabama, Arizona, Colorado, Connecticut, Idaho, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, Oklahoma, Texas, Utah and Vermont – agreeing to participate, with more states likely joining in the coming weeks. What are the Incentives to Participate? Simplified compliance. Online marketplace sellers may not have a storefront in a specific state. However, by using a storage warehouse located within a state, leveraging a fulfillment agent or having inventory in a fulfillment center, sellers most likely have a tax obligation, or nexus, to that state. With this proliferation of fulfillment centers has come uncertainty and confusion on the part of online sellers related to where products are shipping from, and whether or to whom sales tax should be collected and remitted. An unregistered online seller with nexus in a particular state will be asked on the tax registration forms when their business began in that jurisdiction. Registering under the MTC Sales Tax Amnesty program simplifies compliance because accurate information can be shared without financial risk. Forgiveness of back taxes. Under the new amnesty program, participating online sellers will likely...

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