At Tom Vignali CPA, Inc., we are aware of the myriad tax implications resulting from the U.S. Supreme Court Decision re: South Dakota v. Wayfair, Inc. (June 21, 2018) regarding taxation on internet sales.
In its most simplistic form, this decision allows individual states to charge sales tax on internet sales made by companies even if those companies do not have a physical presence in that state. In other words, if your business is solely located in Rhode Island and you make internet sales via an internet presence and ship products to other states, your company could be required to collect the applicable sales tax for the state you ship your products to, and remit said sales tax to that respective state.
To Tax or Not to Tax?
Currently, there are approximately 30 states that require out-of-state sellers to collect and remit sales taxes for internet sales made to entities within their states. Below is a list of some of the potential complications:
Differing Sales Tax Rates
The sales tax rates for each state that you might sell your products into vary, so you will have to calculate a different sales tax rate for each state that you are selling into.
Differing Reporting and Remittance Requirements
Sales tax reporting and remittance requirements vary by state. Some states require monthly reporting and remittance, while other states require quarterly reporting and remittance. And there are also year-end reconciliation reports that need to be filed with each state.
Sales Tax Permits
You will likely have to file for and pay a fee for a sales tax permit for each state that you sell into.
Corporate Income Tax Returns
You might be required to file a corporate Income Tax Return for each state that you sell into. This gets even more complicated as you might need to proportion out revenues versus Cost of Goods, Profit Margins, Administrative Expenses, etc. to determine what your potential Income Tax obligations would be on a state-by-state basis.
Thresholds for Compliance
Some states have established a “threshold” for when sales taxes need to be collected. Some are based on the amount of sales made into that state, whereas others are based on the number of internet sales transactions made into that state. In some instances, if you don’t meet a threshold requirement, you will be exempt. But you will still need to track your business volume to prove that you are below the threshold. In other instances, where there is no threshold, you will not be exempt.
Conclusion: Potential Paperwork Nightmare
One of the basic concerns is that there is no consistency among states on tax law, policies, and procedures. In other words, your company could be faced with 50 different sets of tax laws, policies, and procedures and tax filings. Truly a paperwork nightmare!
In some instances, it might appear more financially feasible to pay a fine/penalty for non-compliance based on the fact that the fine/penalty might be less costly than the costs to comply. At Tom Vignali CPA, Inc., we always recommend compliance with the law.
If you are selling into a state where you have no physical presence, or if a physical presence has been established based upon new interpretations of the definition of a physical presence, this is a critical issue that will impact your business.
At Tom Vignali CPA, Inc., we are more than willing to assist you in addressing the implications of the Wayfair decision if you are participating in any of these types of transactions.
Contact Us:
Thomas W. Vignali CPA Inc.
118 Point Judith Road
Narragansett, RI 02882
T: (401) 415-0798
tom@tomvignalicpa.com
www.tomvignalicpa.com
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