E-commerce has been a crucial sales channel for thousands of small businesses across the country, but on June 21, 2018, the Commerce Clause finally altered how businesses collect sales tax online. The Supreme Court ruled in the case of South Dakota v. Wayfair, giving way for states to impose sales tax on remote sellers based on economic nexus (the volume or dollar value of sales into a state) and not just physical presence.
Settling the debate took years, but requiring companies to comply will likely come much faster. And it’s not just internet retailers that need to pay heed to tax rule changes. Any business in any industry that sells to or services out-of-state customers, online or offline, could be on the hook for sales tax under economic nexus. Here are three actions every tax manager, finance leader, and small business owner should take to prepare in order to collect sales tax online:
Reassess Nexus: Where are your current (and future) customers?
Why it’s time: Now that the Supreme Court has given the green light to one state to collect sales tax on remote sales, others are undoubtedly following suit. Already, more than 20 states have economic nexus laws in place or pending. What that means is that, in addition to states where you have physical presence nexus, you could be required to collect and remit sales tax on sales into states where you meet the minimum thresholds for economic nexus either based on volume of sales or total revenue from those sales.
The Bottom Line: If you are uncertain of your nexus obligations or want to be extra sure your business is compliant under the new economic nexus regulations when collecting sales tax online, consider a nexus analysis study.
Revisit Registration: Will you now need to collect and remit sales tax in more states?
Why it’s time: If your sales activities give you nexus in more states, you’ll need to register to collect sales tax, remit tax, and file sales tax returns in those states. How and when you need to file returns and remit sales tax can be drastically different from state-to-state. Keeping on top of your obligations with the additional burden of economic nexus could become a challenge to manage manually or with in-house staff.
The Bottom Line: Consider the benefits of having a third-party handle registration and returns for you. Avalara has a full suite of technology solutions that address every stage of tax compliance from accurate rate calculation to on-time returns filing to business license and tax registration services.
Rethink Compliance: Is there a better way?
Why it’s time: How you manage sales tax and use tax today may not be enough to keep you compliant once states start expanding and enforcing economic nexus. If the company is growing or planning to grow, its tax obligations will likely grow too. If your financial systems aren’t optimized for tax changes of this magnitude or you are too reliant on staff to keep you compliant, the company could be at greater risk for errors or audits.
The Bottom Line: Having a robust and reliable solution for collecting sales tax online prepares you to deal with any and all tax obligations that impact your business now or in the future. Check out Avalara’s cloud software solutions, which offer unparalleled accuracy and reliability and turn-key set up in your current ERP, ecommerce or accounting system.
Rest Easy. Sales tax is complicated. And it’s not likely to get easier anytime soon. But that doesn’t mean it has to eat up resources and be a burden on the business. Explore the benefits of tax automation. Ask your platform provider about Avalara or talk to one of our tax automation specialists. There’s peace of mind in knowing you’re doing sales tax right…no matter which way the gavel falls.
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The SmallBizRising Blog is designed to be an educational content hub pulling information, best practices and practical advice for the small business owner and features topics including accounting, marketing, technology and more. Be sure to subscribe to stay up to date with new content as it is posted. The blog was created by The Neat Company and receives contributed content from a group of contributing companies that provide technology, services and solutions to small businesses.
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