Birds, Wayfair & Sales Tax

During this trying time, it is hard to place our minds anywhere else other than the pandemic at hand. But as I stepped onto my apartment balcony this morning and heard the birds singing, I realized those birds never stop! Amidst the ups and downs of my daily life, those birds can be counted on to sing a glorious song every morning. (By the way did you know that an issue that has come to light in Wisconsin is the taxation of gamebirds?)

It just speaks to me of the fact that no matter what happens right now, one of the best things we can do for our loved ones is keep our businesses singing at the highest efficiency possible. Since my expertise is sales tax, it is there that I will chime in and attempt to help you and your business!

South Dakota vs Wayfair

After many years of working as a sales tax specialist I sometimes forget that what is common knowledge to me is not common knowledge to all. Take the Supreme Court decision in South Dakota v Wayfair, for example. I assume every business owner is aware of this monumental sales tax ruling that affects nearly every business in America. But almost daily I am reminded, it is not.

I am sure most of you are aware by now that this decision, passed in June 2018, deals with the issue of sales taxnexus. But why, if your business is Texas-based and you have always paid your sales tax to the Great State of Texas, would this ruling affect you?

Wayfair overturned two earlier rulings that based sales tax responsibility on physical presence only and made economic presence a determining factor. So how does that change how you have been paying sales tax for the last million years?

Although there are actually many possible reasons this ruling would affect your business and change your sales tax obligations, today I will only cover one thing.

Tradeshows Sales Tax Nexus

Were you aware that attending and making sales at a trade shows, conventions or seminars in many states, can now create sales tax nexus, requiring sellers to collect and remit sales tax to the state where it is being held.?

Prior to the Wayfair ruling, this was not the case. Today, if your company attends trade shows it is important to understand the nexus (responsibility) implications to avoid being surprised if you receive a letter or questionnaire (as many of my clients have) from the hosting state asking about your business activities that could create a sales tax liability.

How do auditors know about trade show participation?

I recently spoke with a client who attended a trade show in Denver, where they made some sales. Several weeks later a letter from the city arrived stating that they were liable for sales tax to that city - not the state but the city! So now if they were not aware of their obligations to the city, they had better check for obligations to the state of Colorado as well! Right?

Believe me, it is not uncommon for auditors to review trade show exhibitor lists which they can easily find online. I am aware of some auditors that have spoken of even attending trade shows to scout exhibitors making sales or having a large customer base in the state. Why? Because now exhibitors may owe taxes by meeting the economic nexus thresholds the states have put into place post Wayfair.

If you know anything about sales tax laws, you will know that every state is different. So not every state has a law declaring trade show attendance to create nexus, but over 20 states now do. And the new economic nexus laws do not only affect your nexus across state boundaries. Texas alone has 1500+ local sales tax jurisdictions, and there are about 12,000 in the United States.

Selling Products Outside Your State

Thanks to the Supreme Court decision in the 2018 case, South Dakota v. Wayfair Inc. businesses that sell products outside of their home state now have a greater responsibility to keep up with all of those different taxing jurisdictions and their regulations – not only in each state, but in the local jurisdictions, such as cities & counties, as well.

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing). Texas does a little of each.

The origin address is used first. However, if the local tax rate from the origin address is less than 2 percent, the destination address is used to apply additional local tax up to the state-mandated 2-percent limit.

How Can Your Business Stay Compliant?

Sound complicated? It is - and that is only Texas and only part of the hundreds of sales tax regulations to consider when attempting to keep your business compliant and safe from penalties and audits.

As a business owner in today’s market you must know where your company attends trade shows and understand the nexus laws in those states. Determine if you have established nexus and address nexus issues before being contacted by the Department of Revenue in that state. Not only will a proactive approach reduce penalties and save tax dollars, but depending on the state, it may also give you the opportunity to sign a Voluntary Disclosure Agreement with the state waiving penalties or limiting liabilities from past years. We can help you with that and in determining where you may now have a responsibility to collect and pay sales tax.

Here at The MB group we want to help. To begin to understand your unique nexus obligations give us a call today and schedule a time to discuss these crucial issues.