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What remote sellers should consider in the wake of Wayfair

August 6, 2018  |  Carolyn LaViolette

What remote sellers should consider in the wake of Wayfair

The commerce landscape has seen significant changes in the last 15 years. What used to be a “quick trip to the store” has evolved to making purchases on our mobile devices with a swift tap of the finger. So, it’s unsurprising that the U.S. Supreme Court has ruled to bring our country’s commerce laws into the 21st century.

South Dakota v. Wayfair is a landmark United States Supreme Court case in the world of sales and use taxes. The crux of the case is the allowance of South Dakota to require “remote sellers” to collect and remit sales tax on taxable sales after certain thresholds are surpassed.

Put simply, a remote seller generally refers to businesses that sell their product or service to a state without having a physical presence in that state; the sales are typically made using the internet, phone or mail. Before the South Dakota v. Wayfair ruling, these sellers generally weren’t required to collect and remit sales tax on sales made within a state in which they don’t have a physical presence. But now, that has all been changed.  

Turning to the states

In Minnesota, the Department of Revenue (DOR) on July 25 announced that remote sellers must collect and remit Minnesota sales tax by Oct. 1, 2018.

However, not all remote sellers will fall under this requirement. According to Minnesota Statute 297A.66, remote sellers are not required to collect and remit sales taxes to Minnesota until their sales during a period of 12 consecutive months meet either of the following requirements:

  • The remote seller ships 100 or more retail sales to Minnesota.
  • The remote seller has 10 or more retail sales shipped to Minnesota that total more than $100,000.

In addition, some states require remote sellers to file information reports with the state after certain sales thresholds are surpassed, even when there is not yet a requirement to collect and remit sales taxes. As states change their sales tax collection requirements, information from the reports will often be used to inform sellers of changes and help the state with enforcement matters.

Considerations as you prepare

While Wayfair impacts remote sellers of all sizes, those remote sellers, e-commerce organizations with inbound sales, and companies with limited nexus will be the most impacted by this decision. If this sounds like you, the following steps are recommended to determine your readiness to collect and remit sales tax:

  • Identify the jurisdictions in which you have inbound sales.
  • Look up the existing and developing tax laws for remote sellers in those jurisdictions, and determine if they will affect how and when you must collect and remit sales tax. Below are some resources to help you make this determination:
  • Evaluate your systems to determine how to properly source your sales. Changes to your bookkeeping software may be needed to properly track sales by state.
  • Determine if the states you do business with have notification requirements, and file accordingly.

Looking ahead

It’s important to note that the Wayfair decision as it stands is not the last word. First, the United States Supreme Court has sent the case back to the South Dakota Supreme Court for fine tuning. More importantly, the decision could be greatly affected by future Congressional action. 

Congress has had the opportunity to pass a law and set a sales tax standard for the country but, so far, has opted not to. Three bills addressing this matter are currently pending. At this time, it’s unclear if the ruling will make Congress more likely to pass legislation on this issue. But, here are the things you should be tracking as they could affect your interstate commerce business:

  • Watch Congress to see if they’ll act on the Marketplace Fairness Act or other related legislation.
  • Check with the other states you have remote transactions with to see when they’ll require remote sellers to collect and remit sales tax. In particular, keep an eye on whether any states are going to retroactively apply their economic nexus statutes.
  • Consider whether registering for the Streamlined Sales and Use Tax Agreement is right for your company.

The author thanks Steve Warren, CPA of Schechter Dokken Kanter CPAs for his contributions to this article.

Topics: Taxation-Business, Technology

Carolyn LaViolette

Carolyn LaViolette is the MNCPA communications manager, working to enhance members’ professional reputations through content, media relations and public affairs. She is also the MNCPA’s unofficial pianist and has tickled the ivories at multiple MNCPA events. Outside of her love for writing and music, Carolyn spends her time playing with her two daughters, attending Tommie football games with her husband, and memorizing the lyrics to musicals. If you can’t get tickets to Hamilton, she is happy to sing the soundtrack for you. Carolyn can be reached at 952-885-5530 or claviolette@mncpa.org.

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