Last year, a US Supreme Court case opened a huge avenue for states to tax you in new and different ways.
Normally, I spend a lot of time talking about federal taxes. In this case, it’s strictly states that have a new way straight to your pocketbook.
If you sell online, whether it’s through products you ship, digital downloads of books or music, virtual services or any of dozens of ways we can make money these days, you need to watch out for this! It’s specifically targeting online businesses and service providers.
The court case was called South Dakota vs Wayfair. Or, as we’ve gotten used to calling it, the Wayfair case.
In this case, the US Supreme Court overturned a longheld law that a state could not force sales tax collection on a seller unless there was physical presence in that state. In other words, you had employees, independent contractors, inventory, buildings, storefront, SOMETHING physically tangible in the state. If so, they could force you to collect and pay sales tax.
And then Wayfair said that it didn’t require something physical tangible linking someone to the state. A state could force ANY seller to follow their sales tax laws if they had a customer or client in the state.
They did add one caveat though, that so far has saved some small businesses from the onerous task of collecting and paying sales tax for 10,000+ taxing districts. (Remember it’s not just states that have sales tax. Often cities and various special areas do as well. All told, it’s over 10,000)
This particular threshold is that in order to apply the Wayfair ruling, you must either be:
- “Maintaining, occupying or using permanently or temporarily, directly or indirectly or through a subsidiary, an office, place of distribution, sales or sample room or place, warehouse or storage place or other place of business, or
- Having a representative, agent, salesman, canvasser, or solicitor operating in this state under the authority of the retailer or its subsidiary on a temporary or permanent basis,
- Any seller which does not have a physical presence in this state shall remit sales or use tax, if the seller meets either 1-Gross sales from the sales of taxable items delivered in this state exceed $100,000 or 2. The seller sold taxable items for delivery in this state in 200 or more separate transactions.”
The wording above is a little stilted because it comes directly from the case ruling. But the implication is clear.
If you make sales of over $100K or over 200 separate transactions, a state can use Wayfair to require you to collect and pay sales tax.
And since the time the ruling came into effect, 42 states have done just that. Even more troubling to me is that states are now starting to look at using Wayfair to impose income tax requirements as well. Can you imagine filing 42 state income tax returns for your business? YIKES!
It’s also more complicated because the states and taxing districts often have very different definitions of what is subject to sales tax. For example, about half the states now tax digital products which includes tapes, e-books and the like.
This next coaching class (9/18/19) with be all about nexus. Nexus is connection. With this new definition for what actually is connection with a state, what does your online business need to do NOW?
What is your strategy to minimize the impact from this ruling? How can you put a plan in place now that doesn’t bury you in tax and penalties later and at the same time is something workable you can use?
If you’re not yet a member of coaching, please join us at https://www.ustaxaid.com/coaching-program/. Once you’ve signed up you will have access to the past 3 months of Home Study Courses and past recordings. If you have a question, you can send it to Coaching@USTaxAid.com or join us during the live session on Wednesday, 9/18/19 at 5 pm Pacific.
Coaching sessions are always on the first and third Wednesday of the month at 5 pm Pacific. They are recorded in case you can’t make the session
Got a question on whether coaching is right for you or whether it might be better to have a private consultation? Drop Richard an email at Richard@USTaxAid.com.