In June 2018, the Supreme Court South Dakota vs. Wayfair The decision gave states the flexibility to apply tax collection and remittance requirements to distance sellers, just as they have done to sellers in the state for decades. Three years later, every state with a sales tax passed rules that require sales tax collection for remote sellers. As fares, rules, and requirements vary widely from state to state, managing compliance remains a huge challenge. This article argues for state certification of tax automation providers as key to making nationwide compliance manageable and affordable
The Wayfair wave
Prior to June 2018, the United States Constitution was interpreted to consider that a seller could only be required to collect and remit sales tax if they had a physical presence in a jurisdiction. The landmark Wayfair The decision was a game-changer and opened the doors to a new era of sales tax, triggering a huge wave of legislation across the country as state governments rushed to take advantage of this new source of public revenue. In three years, each state with a sales tax adopted its own Wayfair-inspired sales tax laws.
While there was a time when many states copied South Dakota’s distance selling threshold of $ 100,000 in gross sales or precisely 200 individual transactions, this is no longer true. Each state, looking for its own magical set of numbers that would bring sellers into compliance without cluttering the system with smaller businesses, left us with a patchwork of measurement periods, revenue amounts, and transaction count triggers. .
Consider the following examples, which show just how subtle the distinctions can be:
- Arkansas has a trigger of $ 100,000 in sales or 200 transactions, but they only count âtaxableâ sales.
- Connecticut has a trigger of 100,000 sales / 200 transactions; but they only count “retail” sales and registration is only required after crossing both thresholds
- New York has a threshold of $ 500,000 where they only count sales of âtangible personal propertyâ coupled with a 100 transaction count trigger that does not count individual transactions but instead counts individual âsalesâ.
States also differ on whether sales made through third-party online marketplaces count towards the thresholds, but most states believe that once the threshold is crossed, the obligation to comply takes effect immediately. . All of this means that distance sellers need to closely monitor their economic activity to understand where and when they should start registering, collecting and remitting taxes.
Streamline sales tax for distance sellers
Once you find yourself forced to collect and remit tax, it’s time to navigate the mosaic of rates, tax rules, and reporting requirements. With over 640 rate changes since the same period last year and 657 form revisions in the 2020 calendar year, maintaining compliance is no easy task. This is why the Simplified Sales Tax Board of Directors (SSTGB) is such a valuable asset for remote sellers. The SSTGB is a coalition of 24 state governments working together to modernize and simplify sales and use tax administration. The result of their labor is the Simplified Sales and Use Tax Agreement (SSUTA).
SSUTA is a set of uniform fundamental principles which streamline sales tax procedure to which each member state of the SSTGB must adhere. SSUTA streamlines compliance by establishing uniform tax definitions, simplifying tax rates and payments, establishing a central electronic registration system for member states and making state-level administration of taxes mandatory local sales.
For these 24 member states, effective sales tax compliance means that sellers may be more easily able to comply, which in turn results in reduced resources for administration and enforcement. Reduced compliance overheads translate into increased net tax revenues. For example, sales and use tax revenues in Arkansas, West Virginia and Iowa, all ESS member states, increased by 12.9%, 10.7% and 10.6% respectively. during fiscal year 2021 compared to fiscal year 2020.
But SSUTA not only benefits states, but also significantly reduces costs and compliance issues for remote sellers. Clarity and simplicity are one of the keys to making compliance manageable and affordable, but they are not enough on their own. This is where tax automation comes in.
The key role of technology in compliance
The SSTGB recognized early on that most businesses would become compliant through software tools and services. They also recognized that if you made sure that these technology vendors knew and understood all of the compliance requirements, all of their customers would in turn. This notion gave birth to the Certified Service Provider (CSP) program. CSPs are technology companies that are continually certified as accurate by the SSTGB and SSUTA member states. When a CSP works with a remote seller, the CSP effectively performs all of its sales and usage tax functions except for the consumer usage tax self-assessment.
The combination of the SSUTA and CSP program only exists in the 24 Member States, so it is by no means a national panacea to the complexity of compliance and it may never be given that SSUTA is has not expanded its membership list since Georgia joined. 2010. However, since Wayfair, other states have started to implement independent CSP-type programs. Pennsylvania was the first state to create its own CSP program and Illinois is actively working with CSP OSHs to launch their program. Connecticut, Missouri, and New Mexico are also actively considering the CSP approach.
Sales tax compliance is a complex process with many moving parts, but using certified tax compliance software and services is a surefire way for remote sellers to stop worrying about the complicated world of sales. compliance and instead focus on what they’re good at: selling their products to customers across the country.
Charles Maniace is Vice President – Regulatory Analysis and Design at Sovos, one of the world’s leading providers of software that shields businesses from the burden and risks of modern taxation. A lawyer by training, Chuck leads a team of lawyers and tax specialists responsible for all tax and regulatory content that keeps Sovos clients in constant compliance. During his 15-year career in tax and regulatory automation, he has provided analysis to the Wall Street Journal, NBC and more.