David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, marital dissolution, and fraud deterrence programs in Philadelphia and the Delaware Valley.
Prior to the U.S. Supreme Court ruling last month in South Dakota v. Wayfair, most Internet and mail order sellers were not required to charge and remit state sales taxes. However, the justices’ ruling in this matter has significantly changed this. If you are an Internet or remote seller or if you have clients who are, then this blog is of critical importance to you.
States had been permitted, before this ruling, to require out-of-state sellers to charge and collect sales tax only if they had “nexus”. Nexus is generally defined as having some form of physical presence in a state. This could include having actual physical stores or other facilities, having commissioned resellers or sellers’ representatives, or actually delivering product into a state using the company’s own vehicles. Some states have even defined nexus as resulting from in-state advertising or trade show attendance.
With the South Dakota v. Wayfair ruling, the Supreme Court has allowed states to require out-of-state sellers to charge and collect sales tax if they also have “economic nexus”. Economic nexus arises from having a certain minimum level of sales revenue and/or sales transactions in a state, regards of whether a seller has physical presence or not. This means virtually every out-of-state seller could be required to charge and remit sales tax in every state into which products are sold.
Fortunately, in the case of South Dakota, the state recognized that forcing every seller to charge and remit sales tax could be extremely burdensome on smaller businesses. Hence, South Dakota established two possible minimums that must be met before an out-of-state seller is required to charge and remit sales tax: Either $100,000 in taxable South Dakota sales or 200 separate taxable South Dakota sales transactions in either the current or previous calendar year. This would allow smaller businesses who did not meet these minimums to avoid the burden of charging and remitting South Dakota sales tax.
Several other states have passed similar laws:
- Alabama, which applies to companies with more than $250,000 in taxable Alabama sales in the previous calendar year;
- Connecticut, which applies to companies with at least 100 taxable Connecticut sales transactions within the previous 12 months;
- Kentucky, which applies to companies with more than $100,000 in gross Kentucky sales. These companies do not need to charge and remit Kentucky sales tax, but must notify each Kentucky customer that the customer needs to pay Kentucky use tax on the purchase;
- Louisiana, which applies to companies with either more than $100,000 in taxable Louisiana sales or more than 200 separate taxable Louisiana sales transactions in either the current or previous calendar year;
- Tennessee, which applies to companies with more than $500,000 in Tennessee sales within the previous 12 months;
- Vermont, which applies to companies either more than $100,000 in Vermont sales or more than 200 Vermont sales transactions within the previous 12 months.
Of course, because specific state sales tax requirements can be more complex than those summarized above, you shouldn’t just rely on this information without speaking to a qualified tax advisor. Also, some of these state laws were on hold pending the Supreme Court ruling while others have not yet announced when their law will become applicable. Additionally, at least 15 more states are either in the process of passing similar legislation or are considering such.
Retail e-commerce sales in 2017 totaled more than $450 billion. This means that states expect to collect millions more in annual sales taxes based upon the Supreme Court ruling.
If your business or your client’s business could be affected by this Supreme Court ruling, then you or your client should consult with a qualified tax advisor. Such a tax advisor should have expertise in “SALT” – State and Local Taxes, including those states in which you or your client does business.
If you have questions about any finance or fraud issues, you should speak with a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. The Philadelphia forensic accounting firm of David Anderson & Associates can be reached by calling David Anderson at 267-207-3597 or emailing him at firstname.lastname@example.org if you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley.
About David Anderson & Associates
David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson is a forensic accounting expert who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.