Have You Planned For The Post-Wayfair World?
By failing to prepare, you are preparing to fail.
Last year’s Supreme Court decision in South Dakota v. Wayfair, along with the ensuing tide of state law changes, have already affected your state tax exposure. Do you know by how much?
If your business is primarily a retailer of products, the effect of Wayfair likely needs no introduction. States are now able to set bright line thresholds where a certain volume of sales into a state will require you to collect and remit that state’s sales tax.
This trend away from requiring physical presence to establish nexus towards “economic” nexus has been coming for some time, especially for non-income-based taxes such as sales taxes, gross receipts taxes and the like.
But even if your business isn’t in the retail industry, you should still be planning for the changes brought about by Wayfair.
For businesses who sell goods for resale, there are additional compliance concerns to deal with. Similar to Washington, most states require sellers to maintain copies of their customer’s reseller permits to document the wholesale nature of the sale. These permits will need to be maintained as they expire (just like Washington’s reseller permits). Not maintaining these permits may trigger any related sales to be treated as retail sales, and thus, subject to the sales tax.
Furthermore, there can be vast inconsistencies in what items can be purchased for resale in other states.
For example, Washington’s treatment for construction activities is an oddity in the sales tax world. It allows contractors to purchase building supplies and subcontracting services for “resale” to the owner. Most states consider the general contractor to be the “end user” of the materials and subcontracting - and thus the contractor cannot purchase these for “resale.”
Even service providers who have customers outside of Washington should put some thought into how Wayfair affects their business.
Many services which are not subject to Washington sales tax are subject to sales tax in other states. Furthermore, the federal protections from state income taxation, namely Public Law 86-272, do not apply to the sale of services, and states are looking to expand the concept of economic nexus beyond just the sales tax.
It takes time and effort on your accounting department’s behalf to comply with these laws.
The post-Wayfair world understandably causes a lot of anxiety among small business owners and their accounting departments. Despite the sales tax being a consumer’s cost, it takes time and effort on your accounting department’s behalf to comply with these laws, which is costly in itself. It can be tempting to just play a wait-and-see game with the departments of revenue in the other 35+ states with Wayfair-type laws.
Resolve the anxiety with a US Indirect Tax Nexus Review.
A US indirect tax nexus reviews can (1) help you understand where you have potential sales tax exposure, (2) value that exposure and, if needed, (3) assist you with choosing and implementing an indirect tax compliance solution that fits your business best.
The world is growing more interconnected. You may need to collect sales tax from your Idaho customers today, but as your business expands, you may be concerned about British Columbia’s Provincial Sales Tax (PST) or Goods and Services Tax (GST) tomorrow.
The impact of Wayfair grants you the opportunity to prepare for that world.
David Volkert
David provides State and Local Tax Planning and Compliance services to businesses in Washington and elsewhere. If you have questions regarding your state tax exposure or would like to know more about Nexus Reviews, use this button to send an e-mail.