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Matthew Hammond
Sr. Sales Manager, Avalara
USING QUICKBOOKS TO MITIGATE RISK IN SALES AND USE TAX COMPLIANCE
Agenda
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Sales Tax Overview
South Dakota vs. Wayfair, Inc. Ruling
Economic Nexus
Streamline Sales Tax
Automating Sales Tax Compliance
Q&A
Sales Tax Overview
©Avalara. Confidential and proprietary. 4
Your company is responsible for collecting & remitting sales tax on behalf of it’s customers for taxable sales.
Over 12,000 taxing jurisdictions in the United States.
Exceptions:
•Product / service-based statutory exemptions.
•Customer-based exemptions (exemption certificates).
•Taxability exemptions vary by state.
Key transaction inputs:
•WHO - Customer (determination of customer-based exemptions).
•WHEN - Invoice date (tax rate determination).
•WHERE - Ship-to, ship-from, order acceptance addresses (taxing authority, or “sourcing”).
•WHAT - Product / service (determination of product-based exemptions).
Sales Tax is hard
Nexus
Sales tax nexus is the connection between a seller and a state that
requires the seller to collect and remit tax on sales made in that state.
A G R O W I N G L I S T
NEXUS-CREATING ACTIVITIES
Affiliates
Trade shows
Commissions to resellers
Investors / board meetings
Marketing / web advertising
Drop shipments
Multistate locations
Maintenance / service / repairs
Owned / leased real property
Hosted data centers
Field sales / service staff
Licenses / royalties / fees
Direct / online sales
Inventory
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Rates
©Avalara. Confidential and proprietary. 9
©Avalara. Confidential and proprietary.
1Nexus
2Product taxability
3Jurisdiction assignment
4 Exemption certificates
6 Audit readiness
5 State and local tax prep and filing
Tax calculations
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SD vs Wayfair
South Dakota asked the U.S. Supreme Court to overturn its long-standing physical presence rule (Quill Corp. v. North Dakota) for determining when a state can make remote sellers collect sales tax.
The Supreme Court ruled in favor of South Dakota on June 21, 2018.
South Dakota is granted authority to impose sales tax obligations on out-of-state transactions.
©Avalara. Confidential and proprietary. 12
What was South Dakota vs. Wayfair, Inc. about?
Affected: Remote sellers not currently registered with the state who meet threshold requirements
• Annual sales in excess of $100,000 or 200 transactions into South Dakota
Effective date: November 1, 2018
Most impactful is that the “physical presence” rule has been overturned.
©Avalara. Confidential and proprietary. 13
South Dakota vs. Wayfair, Inc. ruling details
If I’m already registered in South Dakota, does this court decision apply to me?
• This ruling will not affect any company already registered and collecting in South Dakota.
Does the ruling only apply to online transactions?
• No. The ruling applies to online and offline sales.
Does the economic nexus rule apply to non-taxable transactions?
• The ruling does not change what is or isn’t taxable.
14©Avalara. Confidential and proprietary.
South Dakota vs. Wayfair, Inc. ruling details
Here’s a look at 2018 by the numbers:
• 42 states adopt economic nexus, requiring out-of-state businesses with a certain amount of economic activity in the state to collect and remit sales tax
• 24 states impose sales tax collection obligations on marketplace providers and sellers
• 5 states establish use tax reporting requirements for non-collecting sellers
• 2 states adopt affiliate or click-through nexus laws for out-of-state sellers
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Sales tax laws on remote sellers tripled after U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc.
The post-Wayfair world
17©Avalara. Confidential and proprietary.
The current economic nexus situation
• Effective in 2019 YTD:
• California
• Colorado
• Georgia
• Idaho
• Iowa
• Nebraska
• North Dakota
• Utah
• West Virginia
• Wyoming
• Washington, D.C.
Map as of 8/30/19
Economic Nexus
W H AT I S I T ?
ECONOMIC NEXUS
Economic nexus is a tax collection obligation imposed on sellers based on their level of economic activity within a state.
Unlike physical presence, it is based entirely on sales revenue, transaction volume, or both.
Like most sales tax laws, economic nexus criteria vary by state. All aim to level the playing field between non-collecting out-of-state sellers and brick-and-mortar businesses.
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• When threshold crossed, going forward a corporation should be collecting either taxes or an exemption form.
• For example: “Remote sellers having economic nexus with South Carolina in calendar year 2017, or from January 1, 2018 through August 31, 2018, are responsible for remitting the sales and use tax for all taxable sales made into South Carolina on or after October 1, 2018. These remote sellers must obtain a retail license from the Department by October 1, 2018. Sales and use tax, penalties, and interest will not be assessed against these remote sellers for taxable sales by these remote sellers before October 1, 2018.”
20©Avalara. Confidential and proprietary.
FAQ: When should I start to collect?
©Avalara. Confidential and proprietary. 21
What Does This Mean for the Amazon FBA Merchant Seller?
Amazon FBA States
Means state has no sales tax
Marketplace Tax Collection
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Marketplace Facilitator legislation is currently in effect in the following states:
STATE EFFECTIVE DATE
Alabama 1/1/2019
Connecticut 12/1/2018
District of Columbia 4/1/2019
Idaho 6/1/2019
Iowa 1/1/2019
Minnesota 10/1/2018
Nebraska 4/1/2019
New Jersey 11/1/2018
Oklahoma 7/1/2018
Pennsylvania 4/1/2018
South Carolina 4/29/2019
South Dakota 3/1/2019
Vermont 6/7/2019
Washington 1/1/2018
“As the marketplace facilitator, Amazon will
now be responsible to calculate, collect, remit, and refund state sales tax on sales sold by third party sellers for transactions destined to states where Marketplace Facilitator and/or Marketplace collection legislation is enacted.
In certain states, local taxes are not included within Marketplace Facilitator Legislation;
Amazon is not responsible for those taxes.”
Marketplace Facilitators
©Avalara. Confidential and proprietary. 23
• Registrations• Likely must register once you have a taxing obligation in a jurisdiction
• Registration requirements in each jurisdiction are different, including forms, process and required information
• Filing• More nexus, more returns to file
• Impact on specific business activities, industries, and types of sales:• Drop shippers
• Exempt sellers
• Marketplace facilitators
• Direct sellers
24©Avalara. Confidential and proprietary.
Far-reaching effects of economic nexus
Business impact
Tips to keep up and compliant
Five steps for managing sales tax
©Avalara. Confidential and proprietary.
Step 1: Know where your
business must collect and remit
sales tax
Step 2: Register to collect and remit sales tax
Step 3: Calculate the
correct sales tax amount
Step 4: Track and manage
exempt sales
Step 5: Remit sales to the
tax authority
Avalara Nexus Study Avalara Licensing Avalara AvaTax Avalara CertCapture Avalara Returns
Exemption Certificates
Washington/Florida
AvaTax
AvaTax does not support cash basis accounting - must be accrual
TransactionalData
Returns & Remittance
Rates & Rules
Connector
How AvaTax works - a Tax Engine in the Cloud
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SST
Cooperative of states and local governments to simplify sale and use tax collection and administration.
Simply put – 24 states have found common ground on sales tax:
• Uniform tax definitions
• Simpler exemption administration
• Uniform audit process
• SST Board approves rates, boundaries, and item taxability
33©Avalara. Confidential and proprietary.
What is SST?
SST overview
Members: Arkansas, Georgia, Kansas, Kentucky, Indiana, Iowa, Michigan, Minnesota, Nebraska, New Jersey, Nevada, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Vermont, Washington, West Virginia, Wisconsin, Wyoming
©Avalara. Confidential and proprietary. 34
Which states are participating?
SST overview
• By registering in the SST program with a CSP like Avalara, your tax compliance process will be streamlined and the cost of compliance can be reduced:
35©Avalara. Confidential and proprietary.
What are the main benefits?
SST overview
Program Benefits Volunteer Status Non-Volunteer status
Free SST registration in 24 states
Single identification number to file and pay taxes in registered states
Uniform filing forms and exemption certificates
Access boundary and rules data
Centralized source of updates and information regarding sales tax rules and regulations
Free certified sales tax calculation software
Free preparation and filing of sales and use tax returns
Free audit Support
36©Avalara. Confidential and proprietary.
What determines your SST status in each participating state?
SST overview
To qualify for Volunteer status in a state, a seller must meet all the following criteria during the 12-
month period immediately preceding the date of registration with the member state or associate
member state:
• No fixed place of business for more than 30 days in the member state or associate member state
• Less than $50,000 of property in the member state or associate member state
• Less than $50,000 of payroll in the member state or associate member state
• Less than 25 percent of total property or total payroll in the member state or associate member state
• Additional considerations may apply to qualify for Volunteer status
Economic nexus and prior registration don’t preclude you from qualifying for Volunteer status!
©Avalara. Confidential and proprietary. 37
Multiple solution and services to help get you on track for 2019!
Avalara can help!
Nexus Studies Customized nexus report
State-specific options for how to begin managing sales tax
A clear path forward
Automatic Sales Tax Filing
Fully automated sales tax preparation and filing
Never miss a filing deadline
Works with your sales or accounting platform
Amazon FBA Inventory Report
Registration and Licensing
Zero guesswork with the right forms
Off-load the end-to-end application process
We walk you through every step
Q&A
Matthew HammondNational Sales Manager, Avalara (919) [email protected]