Many of your vendors, in addition to online retailers, are now required to collect sales tax even though they lack physical presence.
Most of the media coverage, consultants, and blogs have focused on Wayfair’s ramifications on companies that now need to start charging sales tax on sales. This is a concern for thousands of companies. However, I think most published guidance will not address a different risk caused by thousands of companies starting to charge sales tax.
On June 21, 2018, the United States Supreme Court ruled in a 5-4 decision in South Dakota v. Wayfair, Inc., et al, that the physical presence test under the 1992 Supreme Court case (Quill Corp v. North Dakota (504 U.S. 298)) no longer applies to the obligation to collect and remit sales tax on sales to customers in a state. In other words, a company can now be required to collect sales tax by simply selling over the internet or by using any other method, regardless of whether the company or its representatives ever step foot into the state. The ruling is in respect to South Dakota’s law, but almost all states are following.
What Does This Mean?
In a rush to comply with State’s legislation and the Wayfair ruling, thousands of companies will hastily implement processes to charge sales tax. That tax will often be incorrect because these companies lack the appropriate information or systems to properly calculate the tax. Keep in mind that vendors new to collecting will often NOT use appropriate location (situs) information to tax services or determine whether a transaction is an interstate or intrastate purchase of tangible personal property. Vendors will likely NOT know how you use tangible personal property and will NOT have your exemption certificate. These are a few examples.
What Should I Do?
Companies should review all purchase transactions where sales tax was charged by the vendor. Try to identify new vendors and vendors that recently started charging sales tax. For those transactions, recalculate the sales tax on the entire invoice and compare to what the vendor charged. Correct the payment or take corrective action in the current month’s compliance if possible.
A best practice is to automate this procedure If your company has significant purchase transactions. DTS’ TaxView PRO can help. If you are interested go to www.dtstax.com. To contact us, click the link below or call me at (706) 467-0071.