Breaking Down Wayfair: The Client Conundrum

When it comes to complex sales tax compliance issues, your clients likely want no part of dealing with the details and making tough decisions. After all, that’s where you come in – the trusted advisor with the knowledge and expertise to provide meaningful solutions.

That said, with the recent decision in South Dakota v. Wayfair Inc., on June 21, 2018, your clients who do business remotely will suddenly not enjoy the same tax benefits they did for years. That’s because the Court determined the physical presence rule was “unsound and incorrect,” and “economic and virtual” contacts between a business and a state were sufficient grounds for nexus – the connection between a state and a business that triggers a tax collection obligation.

Because this affects so many of your clients and their businesses, your role as their trusted advisor is as important as ever. The reality is that if you aren’t up-to-date on the latest state nexus laws and collection requirements, your clients should be looking for better representation to tackle this complex situation.

So, here is what you need to know to provide your clients with the advice and guidance they need to stay in compliance post-Wayfair.

Registering in New Jurisdictions

Once a business determines it’s reached an economic nexus threshold in a new jurisdiction and has an obligation to collect, it must register to do so with the state tax authority. Under no circumstances should it collect and remit tax in a new jurisdiction before registering to do business there.

This should be a straightforward process, but as is often the case when tax is involved, it can be surprisingly complex. Online applications may be required in some jurisdictions, while a paper application may be required in others. More than one license and permit may be required in each jurisdiction, and in some states, it may be necessary to register with local tax authorities, as well as the state taxing authority.

As a result, registering in a new jurisdiction is likely to be a multi-step process that involves multiple departments, including state and local tax departments, and the secretary of state. To complete the process, businesses will need to furnish a variety of information, including expected annual sales. Once completed, licenses and permits in many jurisdictions need to be periodically renewed.

Let the Collection Begin

Only after fulfilling all registration requirements in a new jurisdiction may a business legally collect and remit sales and use tax. At this point, businesses need to track changes in sales and use tax rates, product taxability, regulations, and a few other areas. These often correspond to the start of a new quarter, but in some states, they can occur at any time.

Sales tax holidays are another consideration. Approximately 17 states offer at least one sales tax holiday, exempting from state and/or local sales tax specific items, such as clothing, school supplies, emergency-preparedness supplies and guns. Sellers need to know when and where tax-free periods occur and comply accordingly.

Managing exemption and resale certificates is another essential task once a retailer starts doing business in a new jurisdiction. If sales tax wasn’t collected, as required, on a taxable transaction at the point of sale, tax authorities will want that exempt transaction validated with a certificate.

The Takeaway

As you break down Wayfair and handle these complex issues for your clients, don’t take for granted that you are their go-to resource for these matters. After all, you should know that the nexus landscape for remote retailers is in flux, and your clients will rely on you to help provide a system to monitor changes in state nexus laws and be ready to comply with new collection requirements.

As their trusted advisor, it’s your responsibility to tackle Wayfair and provide them with solutions to keep them in compliance and profitable for years to come. Learn more about South Dakota v. Wayfair and its potential impact on business here.

Gail Cole is a writer, blogger, editor and sales tax expert for Avalara. Contact her at gail.cole@avalara.com.