presented by: diane merk · diane merk, principal state & local tax clark schaefer hackett cody...

Presented by:

Diane Merk

Cody Cain

TODAY’S PRESENTERS

Diane Merk, Principal

State & Local Tax

Clark Schaefer Hackett

Cody Cain, Manager

State & Local Tax


AGENDA

• History of sales tax before June 21, 2018

• The Case – South Dakota v. Wayfair

• State rules that have been enacted due to Wayfair

• Exemption certificates

• Key steps to prepare for compliance

• Are states anticipated to apply Wayfair retroactively?

• Software solutions

HISTORY BEFORE WAYFAIR:

Pre-June 21, 2018 – substantial nexus for sales and use tax purposes.

The Supreme Court cases in Quill v. North Dakota, 503 U.S. 298 (1992) and

National Bellas Hess v. Dept. of Revenue 386 U.S. 753 (1967) set the rule…

Physical presence was required for sales and use tax nexus. These two

Supreme Court cases held that some minimal contact (physical presence) was

required in a state such as:

• Salesmen in the state

• Payroll in the state

• Property in the state

SOUTH DAKOTA v. WAYFAIR

The case involved a challenge to South Dakota law enacted in 2016 that

required remote sellers to register, collect and remit sales tax as if they have a

physical presence in the state if, in the previous calendar year, the seller either:

• Had over $100,000 of gross revenue from delivery of tangible personal

property, products transferred electronically or taxable services (collectively

goods) into South Dakota; or

• Sold these goods for delivery into South Dakota in 200 or more separate

transactions.

All parties agreed that the South Dakota law exceeded current constitutional

standards. The South Dakota Supreme Court agreed and found the law

unconstitutional.

SOUTH DAKOTA v. WAYFAIR – U.S. Supreme Court Majority Opinion

• The Court overturned the Supreme Court cases in Quill and National Bellas

Hess.

• The Court focused on the practical economic effect and the continued viability

of the physical presence standard.

• The Court dismissed concerns that software compliance costs would harm

the market.

SOUTH DAKOTA v. WAYFAIR – U.S. Supreme Court Majority Opinion

• The Court found de minimis protections in the South Dakota law including:

- Small business and startups a “reasonable degree of protection” (finding a minimum

filing requirement of $100k in sales or 200 transactions was reasonable).

- Limitations on enforcement of law retroactively (SD retroactivity addressed later)

- The fact that South Dakota was a Streamlined Sales Tax member. SSUTA is:

- 24 member states that agreed to implement sales tax uniformity laws

- Designed to simplify sales tax complexity, provide uniform definitions, simplify

sales tax filing requirements.

• The Court remanded the case back to the South Dakota Supreme Court.

• For any remaining claims regarding the Commerce Clause’s application in the

absence of Quill and National Bellas Hess

• To be addressed by the South Dakota Supreme Court in the first instance on remand.

STANDARDS AFTER WAYFAIR:

Quill and Bellas Hess are overruled.

Physical presence is no longer required for sales tax nexus.

Look to Complete Auto Transit’s four-prong test for substantial nexus.

• The new standard – substantial nexus. Substantial nexus exists when a

taxpayer “avails itself of the substantial privilege of carrying on a business in

that jurisdiction.” Nexus can be established on the basis of both economic

and virtual contacts with a state;

• Is fairly apportioned;

• Does not discriminate against interstate commerce; and

• Is fairly related to the services the State provides.

WILL CONGRESS ACT?

• It is anticipated that congress will NOT act.

• However, pending legislation has been introduced in

Congress virtually every year since the Quill case in 1992.

• Interested parties should contact their U.S. Senator or

Congressmen to discuss their concerns with Wayfair.

WHAT WILL STATES DO?

It is anticipated that most states will take action or pass new legislation post-

Wayfair to collect additional sales tax revenue in their budget.

States with similar laws on their books can immediately begin requiring remote

sellers to register and collect sales tax.

States that do not have a law are most likely going to adopt a similar statute as

South Dakota.

WHAT ARE THE NEW ECONOMIC NEXUS STANDARDS?

• The South Dakota standard is $100,000 in sales or 200 transactions

• What are other states doing?

• What is a transaction?

WHAT HAVE OTHER STATES ADOPTED?

• As of 8/16/18, 24 states have an economic nexus policy similar to

that of South Dakota

• 5 states have a $250,000 threshold

• 3 states have a $500,000 threshold

WHAT ARE THE EFFECTIVE DATES?

• The effective dates range from 8/17/17 to 1/1/19, with a few exceptions

• 4 states had an effective date of 7/1/18 and 1 has an effective date of

9/1/18

• The majority of the states have chosen an effective date of 10/1/18 or

later

Several states have pending litigation in place that must be resolved before

they can announce an effective date (IN, SD, WY)

One state must have further legislative approval (TN)

Several states are in the process of drafting an economic nexus policy (CA,

MD, NV)

WHAT ARE THE EFFECTIVE DATES?

Economic Nexus for Adopting StatesAs of 8/20/18

State Threshold Effective Date

Alabama $250,000 or more in sales October 1, 2018Applied prospectively

Connecticut $250,000 or more in sales and December 1, 2018200 or more retail sales transactions

Georgia $250,000 or more in sales and January 1, 2019200 or more separate transactionsAs an elective alternative to the noticeand reporting requirements

Hawaii $100,000 or more in sales or July 1, 2018200 or more separate transactions Applied prospectively

Illinois $100,000 or more in sales or October 1, 2018200 or more separate transactions Applied prospectively


Indiana $100,000 or more in sales or October 1, 2018200 or more separate transactions Applied prospectively

Iowa $100,000 or more in sales or January 1, 2019200 or more separate transactions Applied prospectively

Kentucky $100,000 or more in sales or October 1, 2018200 or more separate transactions

Louisiana $100,000 or more in sales or January 1, 2019200 or more separate transactions

Maine $100,000 or more in sales or July 1, 2018200 or more separate transactions

Massachusetts $500,000 or more in sales and October 1, 2017100 or more separate transactions


Michigan $100,000 or more in sales or October 1, 2018200 or more transactions

Minnesota 100 or more retail sales or 10 or October 1, 2018more sales that total $100,000 or more

Mississippi $250,000 in sales in the prior 12 September 1, 2018months

Nebraska $100,000 or more in sales or January 1, 2019200 or more separate transactions Applied prospectively

New Jersey $100,000 or more in sales or October 1, 2018200 or more separate transactions Applied prospectively

North Carolina $100,000 or more in sales or November 1, 2018200 or more separate transactions


North Dakota $100,000 or more in sales or October 1, 2018200 or more separate transactions

Ohio $500,000 or more in sales January 1, 2018Pending litigation

Oklahoma $10,000 in sales during the July 1, 2018preceding 12 calendar monthsAs an elective alternative to thenotice and reporting requirements

Pennsylvania $10,000 in taxable retail sales April 1, 2018As an elective alternative to thenotice and reporting requirements

Rhode Island $100,000 or more in taxable sales or August 17, 2017200 or more transactionsAs an elective alternative to the notice and reporting requirements


South Carolina $250,000 or more in sales October 1, 2018(Final guidance not yet issued) Applied prospectively

South Dakota $100,000 or more in sales or May 1, 2016200 or more separate transactions Pending litigation

Tennessee $500,000 or more in sales June 1, 2017Pending litigation

Utah $100,000 or more in sales or January 1, 2019200 or more transactions

Vermont $100,000 or more in sales July 1, 2018200 or more separate transactions

Washington $100,000 or more in sales or October 1, 2018200 or more transactions


Wisconsin $100,000 or more in sales or October 1, 2018200 or more separate transactions

Wyoming $100,000 or more in sales or July 1, 2017200 or more separate transactions Pending litigation

The new economic nexus policies don’t just affect sales tax at the

state level

We also must consider the local tax filings

There are over 12,000 sales tax jurisdictions in the U.S.

IMPACT ON LOCAL TAX?

ARE STATES ANTICIPATED TO APPLY

WAYFAIR RETROACTIVELY?

• Wayfair did not determine whether states could or could not apply the decision

retroactively, which leaves each state to set its own policy as to how the state will

require taxpayers to comply with Wayfair.

• Several states have specifically addressed whether the Wayfair decision will be

treated retroactively or prospectively.

• A guarantee that the South Dakota law would not be applied retroactively was an

important aspect of it being upheld, but this remains an open question for the

states that remain silent on the issue. We expect states who apply Wayfair

retroactively to be challenged.

• More than 30 states committed to prospective application in an amicus brief filed

as part of the South Dakota v. Wayfair case.

KEY STEPS TO PREPARE FOR COMPLIANCE

Who is affected by the Wayfair decision?

• Generally, retailers, distributors and manufacturers selling online or remotely.

What do you need to do now in response to the Wayfair decision?

• Analyze your sales volume and the number of transactions for each state.

• Determine the taxability of your products and services in states where you exceed the

economic nexus thresholds.

• Collect exemption certificates from your customers – in all states.

• Review your existing accounting systems for accurate sales tax application and reporting.

• Determine new filing requirements, do necessary registrations and possibly find a

software solution.


Collect sales tax exemption certificates in all states from exempt customers.

Review exemption certificate collection procedures and policies. There are

generally three types of valid exemptions available:

• Sales for resale

• Sales to tax exempt 501(c)(3) type organizations such as government,

charities, schools, not-for-profit hospitals etc.

• Exempt based on use such as manufacturing, packaging, etc.


To be valid an exemption certificate must contain:

• Name of the customer, customer signature, & date signed

• Sales tax/vendor license number

• Valid reason for exemption

• Vendor name

• Other requirements vary by state

- Certain states issue an exemption form/certificate

- Certain states issue direct pay permits


Additionally, don’t forget about other taxes once you register for sales tax in a

state. Collecting sales tax in a state might expose a taxpayer to

income/franchise taxes as well. Remote sellers generally have a mixture of

states in which they have some level of physical presence or have only

economic presence. These businesses must be careful not to simply register

for sales tax collection without first evaluating their facts.

SOFTWARE SOLUTIONS

There are various software companies that have solutions that

taxpayers can use to comply with state law changes.

Taxpayers should evaluate their need to automate sales tax on

invoices for the following reasons:

• In the U.S. there are over 12,000 sales tax rates

• Exemption certificate compliance and automation

• Taxability issues

• Sales tax reporting and filing automation

• Audit trail and audit defense

• Tracking sales and transactions by state, county, transit district,

and city for filing requirements and nexus.

• State laws such as origin based sourcing, destination based

sourcing, and similar jurisdiction/tax rate laws.

QUESTIONS?

Diane Merk, Principal

State & Local Tax


Cody Cain, Manager

State & Local Tax


CSH SALT TEAM

Diane Merk

Cincinnati Office

[email protected]

Sharon Reisman

Columbus Office

[email protected]

Keri Boergert

Cleveland Office

[email protected]

Cody Cain

Miami Valley Office

[email protected]

Presented by:

Diane Merk

Cody Cain

presented by: diane merk · diane merk, principal state & local tax clark schaefer hackett cody...

Documents