Risks Related to the Sales Tax Collection on Sellers in Different States

The Supreme Court’s June 21, 2018 decision in South Dakota v. Wayfair, Inc. to impose sales tax collection obligations on sellers without a physical presence in the state is causing uneasiness to business owners. This law is set to go into effect on April 1, 2019.

The American Institute of Certified Public Accountants (AICPA) might have something to be concerned about.  According to Deb Rood, CPA, the AICPA’s professional liability insurer, they anticipate an increase in the number of failure-to-advise claims related to how the new regulation impacts a firm’s client. 

Wayfair  

The Wayfair decision allows states to tax remote sales vs taxing sales with a physical presence which includes services.  Dozens of states have enacted similar legislature calling it the so-called economic nexus where some states can collect sales tax from buyers in that state if they meet that state’s sales criteria even though they do not have a physical presence in that state.

 Under the South Dakota v Wayfair law, you do not have to have a physical presence in that state. If a retailer meets the state’s economic threshold for total revenue or number of transactions in that state, that retailer is legally obligated to collect and remit sales tax to that state.

What Has Caused States to Implement?

Technological advances have reduced the cost of collecting sales taxes, including platforms created by some of the e-commerce websites.

The estimated loss of sales tax revenue has been as high as $33 billion in previous years.  

Sleeper States, or, the Known and the Unknown

States that have not passed any kind of sales tax regulation set thresholds, spelled out regulations, or announced when these laws will take effect are known as—sleeper states. They haven’t yet made any decisions or drafted legislation pertaining to this case. Should some of these sleeper states wake up and enact sales tax laws that could go into effect at any time, it could potentially hurt online retailers if they are not prepared. 

Mary Wong