It’s been just over three years since the US Supreme Court issued its landmark decision in South Dakota vs. Wayfair, Inc.; and now is a perfect time to provide an update as almost every state has new laws on sales tax and have defined their economic thresholds for remote sellers. Recently, two of our state and local tax partners Tom Mazurek, Jr., CPA, and Andy Toth, CPA, had a discussion on this very topic that can be found here (Doing Business in the US Sales Tax Update and State Mandates) and below are some of the key highlights to take away.
Since the Wayfair decision in 2018, most states have added economic nexus laws as a tool to increase sales tax revenues. Under economic nexus, a state can require a remote seller to collect and remit sales tax if their activity has exceeded certain economic thresholds. States are using minimum amounts of sales dollars (ranging from $100,000 to $500,000 in sales) and/or number of transactions to set their economic nexus thresholds. This has allowed states to collect sales tax on sales which would have most likely gone untaxed.
Businesses should also keep in mind that physical presence in a state still creates sales tax nexus no matter what the level of economic activity is. Examples of physical presence are inventory in a warehouse or using employees or third-party representatives for sales calls, doing installations or making repairs.
States have stepped up their discovery and enforcement of their new economic nexus laws. Businesses are receiving inquiries from states as to their activity in a state. These inquiries should not be ignored, and the response should be reviewed by a professional that is experienced in state and local taxes. States are using a number of tools available to them to find unregistered companies doing business in their state. One of the favorite tools used to find foreign corporations is to review inbound duty records to determine where products are shipped.
If you have been selling into the U.S., it is important to review sales data for the past several years to determine if economic nexus thresholds have been exceeded. It is equally important to determine how you are conducting business in the U.S. and if your business has a physical presence in a state. A state can go back many years if your business has not been filing sales tax returns. We can provide a strategy to limit the look-back period and ensure your business is in compliance with sales tax going forward.
Download our updated overview here.
Download our updated state-by-state sales tax chart here.
For more information on the intricacies of state and local taxation, please contact Tom Mazurek, Partner, or Andy Toth, Partner, at Tronconi Segarra & Associates. They can be reached at tmazurek@tsapa.com or atoth@tsacpa.com or (716) 633-1373.
