With the overturning of 26 years of U.S. Supreme Court precedent, states may now compel taxpayers to collect sales tax from consumers who make purchases within the state.  Prior to the Wayfair decision last month, a taxpayer needed to have a “physical presence” in a state before it was subject to the state’s sales tax collection requirements.  The Supreme Court, in Wayfair, found that the decision was not only antiquated, but was probably a poor ruling when it was made back in 1992.

What should businesses do because of this new ruling?

Action Steps

1. Review your activities in each state. Determine where your sales are and the quantities of sales in each state.  This will help you determine whether you now have sales tax “nexus” (and thus a sales tax collection and filing requirement) with a state, depending on that state’s rules and thresholds. 
2. Determine where you will/won’t register, collect, and remit tax. Based on your review of your activities, you should decide as to where you will register and begin filing, or where to wait for further developments, or simply determine that the costs outweigh the penalties of noncompliance.  As part of this process, you may decide to register through the Streamlined Sales Tax Initiative.
3. Review the state timelines for required implementation. Each state has its own timing for when businesses must comply with its new rules.  For some states, the new economic nexus rules are already in effect, while others have delays of up to 6 months, and still others currently have not yet put such rules into place (though most states are expected to put similar laws into place at some point).
4. Address any information technology shortcomings. Can your current system track sales by destination sufficiently to allow you to determine where and how much sales tax to collect, as well as bill customers in the applicable states for the tax?  Are some sales taxable and others not taxable, and can your system distinguish between the two?
5. Register, collect, and remit sales tax. Once you have determined where you will file and how much to bill and collect from customers, you must then begin to file the appropriate sales tax reports with the states and remit the collected tax.

This is a simplified summary of things to consider, of course, but it is something that should begin to be addressed immediately.  The tax professionals at Smith Leonard are willing and able to help you with the process, so don’t hesitate to contact us with any questions or for additional assistance.