We are more than a year removed from the Wayfair vs South Dakota ruling by the Supreme Court of the United States and over 35 states have laws on the books for remote sales and use taxes. This offers a host of complex challenges for companies, especially ones with online transactions. Commonly regarded as the “internet sales tax,” this ruling overturned a law that enabled states to impose sales taxes on a company ONLY if that company had a physical presence in the state. Online retailers and other companies doing business online benefited greatly from this physical presence requirement, but that chapter in history is closed.
In simplistic terms, the Wayfair vs South Dakota ruling allows states to tax companies based on an economic nexus (i.e., economic activity), regardless of a company’s physical presence. The Wayfairs, Overstock.coms and Neweggs of the world, along with smaller companies selling products or services online, are experiencing a paradigm shift in real-time. How is your company handling these new requirements?
In this blog post, we will quickly review three of the more significant challenges associated with the internet tax and why NetSuite customers should consider a cost and time-saving integration to ease the adjustment process.
Economic Nexus Thresholds Vary
Sales and transaction thresholds are two common ways to establish economic nexus. Thresholds are typically around $100-250k gross revenue for taxable goods and services, or a minimum of 200 transactions per year into the state. (reference: JDSupra.com) Companies that do not meet these one or both of these thresholds are generally safe.
However, each state can have different standards or ways of taxing remote sales, and sometimes individual jurisdictions within a state will have specific requirements. Affiliate nexus, click-through nexus, and cookie nexus are a few examples of taxing remote sales. Also, some states include taxes on electronically transferred products while others do not. And, there are about 12,000 jurisdictions in the US, so keeping track of every standard at both levels can be tricky.
Different Transactions Qualify for Sales and Use Taxes
States have different definitions for transactions that qualify for sales and use tax. This also applies to the products and services that are exempted from these taxes. For example, some states specify that “retail sales” are taxable while others are more ambiguous, claiming “sale of tangible personal property, intangible property, or services” are subject to taxes. Much like the thresholds above, state-by-state differences are again a challenge. (reference: JDSupra.com)
New Requirements for Sales and/or Transaction Monitoring
Companies are now required to meticulously track transactions and sales in nearly every state in which they do business. This is a drastically different reality compared life before this ruling when companies didn’t have to worry about taxes in states where they lacked a physical presence. (reference: Avalara Blog)
Are you confident in your current tax solution in the wake of Wayfair vs South Dakota?
NetSuite customers of all sizes need to have this on their radar as the enforcement of the internet tax is going to become more strict as time passes. Luckily, there is an excellent tax solution for navigating this new environment. Let us introduce you to our strategic partner who has an end-to-end tax automation solution that can bring you peace of mind.
Call us at (833) 799-5788.