presented by: diane merk · diane merk, principal state & local tax clark schaefer hackett cody...
TRANSCRIPT
Presented by:
Diane Merk
Cody Cain
TODAY’S PRESENTERS
Diane Merk, Principal
State & Local Tax
Clark Schaefer Hackett
Cody Cain, Manager
State & Local Tax
Clark Schaefer Hackett
AGENDA
• History of sales tax before June 21, 2018
• The Case – South Dakota v. Wayfair
• State rules that have been enacted due to Wayfair
• Exemption certificates
• Key steps to prepare for compliance
• Are states anticipated to apply Wayfair retroactively?
• Software solutions
HISTORY BEFORE WAYFAIR:
Pre-June 21, 2018 – substantial nexus for sales and use tax purposes.
The Supreme Court cases in Quill v. North Dakota, 503 U.S. 298 (1992) and
National Bellas Hess v. Dept. of Revenue 386 U.S. 753 (1967) set the rule…
Physical presence was required for sales and use tax nexus. These two
Supreme Court cases held that some minimal contact (physical presence) was
required in a state such as:
• Salesmen in the state
• Payroll in the state
• Property in the state
SOUTH DAKOTA v. WAYFAIR
The case involved a challenge to South Dakota law enacted in 2016 that
required remote sellers to register, collect and remit sales tax as if they have a
physical presence in the state if, in the previous calendar year, the seller either:
• Had over $100,000 of gross revenue from delivery of tangible personal
property, products transferred electronically or taxable services (collectively
goods) into South Dakota; or
• Sold these goods for delivery into South Dakota in 200 or more separate
transactions.
All parties agreed that the South Dakota law exceeded current constitutional
standards. The South Dakota Supreme Court agreed and found the law
unconstitutional.
SOUTH DAKOTA v. WAYFAIR – U.S. Supreme Court Majority Opinion
• The Court overturned the Supreme Court cases in Quill and National Bellas
Hess.
• The Court focused on the practical economic effect and the continued viability
of the physical presence standard.
• The Court dismissed concerns that software compliance costs would harm
the market.
SOUTH DAKOTA v. WAYFAIR – U.S. Supreme Court Majority Opinion
• The Court found de minimis protections in the South Dakota law including:
- Small business and startups a “reasonable degree of protection” (finding a minimum
filing requirement of $100k in sales or 200 transactions was reasonable).
- Limitations on enforcement of law retroactively (SD retroactivity addressed later)
- The fact that South Dakota was a Streamlined Sales Tax member. SSUTA is:
- 24 member states that agreed to implement sales tax uniformity laws
- Designed to simplify sales tax complexity, provide uniform definitions, simplify
sales tax filing requirements.
• The Court remanded the case back to the South Dakota Supreme Court.
• For any remaining claims regarding the Commerce Clause’s application in the
absence of Quill and National Bellas Hess
• To be addressed by the South Dakota Supreme Court in the first instance on remand.
STANDARDS AFTER WAYFAIR:
Quill and Bellas Hess are overruled.
Physical presence is no longer required for sales tax nexus.
Look to Complete Auto Transit’s four-prong test for substantial nexus.
• The new standard – substantial nexus. Substantial nexus exists when a
taxpayer “avails itself of the substantial privilege of carrying on a business in
that jurisdiction.” Nexus can be established on the basis of both economic
and virtual contacts with a state;
• Is fairly apportioned;
• Does not discriminate against interstate commerce; and
• Is fairly related to the services the State provides.
WILL CONGRESS ACT?
• It is anticipated that congress will NOT act.
• However, pending legislation has been introduced in
Congress virtually every year since the Quill case in 1992.
• Interested parties should contact their U.S. Senator or
Congressmen to discuss their concerns with Wayfair.
WHAT WILL STATES DO?
It is anticipated that most states will take action or pass new legislation post-
Wayfair to collect additional sales tax revenue in their budget.
States with similar laws on their books can immediately begin requiring remote
sellers to register and collect sales tax.
States that do not have a law are most likely going to adopt a similar statute as
South Dakota.
WHAT ARE THE NEW ECONOMIC NEXUS STANDARDS?
• The South Dakota standard is $100,000 in sales or 200 transactions
• What are other states doing?
• What is a transaction?
WHAT HAVE OTHER STATES ADOPTED?
• As of 8/16/18, 24 states have an economic nexus policy similar to
that of South Dakota
• 5 states have a $250,000 threshold
• 3 states have a $500,000 threshold
WHAT ARE THE EFFECTIVE DATES?
• The effective dates range from 8/17/17 to 1/1/19, with a few exceptions
• 4 states had an effective date of 7/1/18 and 1 has an effective date of
9/1/18
• The majority of the states have chosen an effective date of 10/1/18 or
later
Several states have pending litigation in place that must be resolved before
they can announce an effective date (IN, SD, WY)
One state must have further legislative approval (TN)
Several states are in the process of drafting an economic nexus policy (CA,
MD, NV)
WHAT ARE THE EFFECTIVE DATES?
Economic Nexus for Adopting StatesAs of 8/20/18
State Threshold Effective Date
Alabama $250,000 or more in sales October 1, 2018Applied prospectively
Connecticut $250,000 or more in sales and December 1, 2018200 or more retail sales transactions
Georgia $250,000 or more in sales and January 1, 2019200 or more separate transactionsAs an elective alternative to the noticeand reporting requirements
Hawaii $100,000 or more in sales or July 1, 2018200 or more separate transactions Applied prospectively
Illinois $100,000 or more in sales or October 1, 2018200 or more separate transactions Applied prospectively
State Threshold Effective Date
Indiana $100,000 or more in sales or October 1, 2018200 or more separate transactions Applied prospectively
Iowa $100,000 or more in sales or January 1, 2019200 or more separate transactions Applied prospectively
Kentucky $100,000 or more in sales or October 1, 2018200 or more separate transactions
Louisiana $100,000 or more in sales or January 1, 2019200 or more separate transactions
Maine $100,000 or more in sales or July 1, 2018200 or more separate transactions
Massachusetts $500,000 or more in sales and October 1, 2017100 or more separate transactions
State Threshold Effective Date
Michigan $100,000 or more in sales or October 1, 2018200 or more transactions
Minnesota 100 or more retail sales or 10 or October 1, 2018more sales that total $100,000 or more
Mississippi $250,000 in sales in the prior 12 September 1, 2018months
Nebraska $100,000 or more in sales or January 1, 2019200 or more separate transactions Applied prospectively
New Jersey $100,000 or more in sales or October 1, 2018200 or more separate transactions Applied prospectively
North Carolina $100,000 or more in sales or November 1, 2018200 or more separate transactions
State Threshold Effective Date
North Dakota $100,000 or more in sales or October 1, 2018200 or more separate transactions
Ohio $500,000 or more in sales January 1, 2018Pending litigation
Oklahoma $10,000 in sales during the July 1, 2018preceding 12 calendar monthsAs an elective alternative to thenotice and reporting requirements
Pennsylvania $10,000 in taxable retail sales April 1, 2018As an elective alternative to thenotice and reporting requirements
Rhode Island $100,000 or more in taxable sales or August 17, 2017200 or more transactionsAs an elective alternative to the notice and reporting requirements
State Threshold Effective Date
South Carolina $250,000 or more in sales October 1, 2018(Final guidance not yet issued) Applied prospectively
South Dakota $100,000 or more in sales or May 1, 2016200 or more separate transactions Pending litigation
Tennessee $500,000 or more in sales June 1, 2017Pending litigation
Utah $100,000 or more in sales or January 1, 2019200 or more transactions
Vermont $100,000 or more in sales July 1, 2018200 or more separate transactions
Washington $100,000 or more in sales or October 1, 2018200 or more transactions
State Threshold Effective Date
Wisconsin $100,000 or more in sales or October 1, 2018200 or more separate transactions
Wyoming $100,000 or more in sales or July 1, 2017200 or more separate transactions Pending litigation
The new economic nexus policies don’t just affect sales tax at the
state level
We also must consider the local tax filings
There are over 12,000 sales tax jurisdictions in the U.S.
IMPACT ON LOCAL TAX?
ARE STATES ANTICIPATED TO APPLY
WAYFAIR RETROACTIVELY?
• Wayfair did not determine whether states could or could not apply the decision
retroactively, which leaves each state to set its own policy as to how the state will
require taxpayers to comply with Wayfair.
• Several states have specifically addressed whether the Wayfair decision will be
treated retroactively or prospectively.
• A guarantee that the South Dakota law would not be applied retroactively was an
important aspect of it being upheld, but this remains an open question for the
states that remain silent on the issue. We expect states who apply Wayfair
retroactively to be challenged.
• More than 30 states committed to prospective application in an amicus brief filed
as part of the South Dakota v. Wayfair case.
KEY STEPS TO PREPARE FOR COMPLIANCE
Who is affected by the Wayfair decision?
• Generally, retailers, distributors and manufacturers selling online or remotely.
What do you need to do now in response to the Wayfair decision?
• Analyze your sales volume and the number of transactions for each state.
• Determine the taxability of your products and services in states where you exceed the
economic nexus thresholds.
• Collect exemption certificates from your customers – in all states.
• Review your existing accounting systems for accurate sales tax application and reporting.
• Determine new filing requirements, do necessary registrations and possibly find a
software solution.
KEY STEPS TO PREPARE FOR COMPLIANCE
Collect sales tax exemption certificates in all states from exempt customers.
Review exemption certificate collection procedures and policies. There are
generally three types of valid exemptions available:
• Sales for resale
• Sales to tax exempt 501(c)(3) type organizations such as government,
charities, schools, not-for-profit hospitals etc.
• Exempt based on use such as manufacturing, packaging, etc.
KEY STEPS TO PREPARE FOR COMPLIANCE
To be valid an exemption certificate must contain:
• Name of the customer, customer signature, & date signed
• Sales tax/vendor license number
• Valid reason for exemption
• Vendor name
• Other requirements vary by state
- Certain states issue an exemption form/certificate
- Certain states issue direct pay permits
KEY STEPS TO PREPARE FOR COMPLIANCE
Additionally, don’t forget about other taxes once you register for sales tax in a
state. Collecting sales tax in a state might expose a taxpayer to
income/franchise taxes as well. Remote sellers generally have a mixture of
states in which they have some level of physical presence or have only
economic presence. These businesses must be careful not to simply register
for sales tax collection without first evaluating their facts.
SOFTWARE SOLUTIONS
There are various software companies that have solutions that
taxpayers can use to comply with state law changes.
Taxpayers should evaluate their need to automate sales tax on
invoices for the following reasons:
• In the U.S. there are over 12,000 sales tax rates
• Exemption certificate compliance and automation
• Taxability issues
• Sales tax reporting and filing automation
• Audit trail and audit defense
• Tracking sales and transactions by state, county, transit district,
and city for filing requirements and nexus.
• State laws such as origin based sourcing, destination based
sourcing, and similar jurisdiction/tax rate laws.
QUESTIONS?
Diane Merk, Principal
State & Local Tax
Clark Schaefer Hackett
Cody Cain, Manager
State & Local Tax
Clark Schaefer Hackett
CSH SALT TEAM
Diane Merk
Cincinnati Office
Sharon Reisman
Columbus Office
Keri Boergert
Cleveland Office
Cody Cain
Miami Valley Office
Presented by:
Diane Merk
Cody Cain