Your company’s bills and transactions have reached a new level of complexity. And that’s all thanks to the Supreme Court’s ruling on the much-anticipated South Dakota v. Wayfair case.
Now, online sales are taxable. Economic nexus is standard. And, no surprise, states are jumping at the chance to bring in more revenue via tax collection (and higher bills for your company).
As if that wasn’t enough to adjust to, there’s more. Each state is taking a different approach on the specifics of how economic nexus will work within its borders.
That means it’s more crucial than ever before for your staff to have a handle on states’ sales tax standards. A/R has to make sure it’s charging the right sales tax and A/P has to guarantee it’s paying the right sales tax.
Here’s what you need to know – about the case and states’ actions – to maintain sales tax accuracy and compliance in Finance.
The Court’s stance
At its core, South Dakota v. Wayfair hinged on whether a state can require remote sellers to collect and remit sales tax “without some additional connection to the State.”
The Court pointed out that many people believe the physical presence rule is outdated. (In 1992, less than 2% of people had Internet. Today, 89% of people do.) With so many transactions occurring online now, taxing online sales would level the playing field for all businesses.
And in a 5-4 decision, those pro-state voices won out.
The current atmosphere
Since the ruling was issued in late June, 28 states have implemented or updated economic nexus rules.
Those states, by region, are:
- Northeast: CT, MA, ME, PA, RI and VT
- South: AL, GA, KY, LA, MS, NC, OK and TN
- Midwest: IL, IN, IA, MI, MN, NE, ND, OH, SD and WI, and
- West: HI, UT, WA and WY.
And we don’t need to a crystal ball to predict that more states will be joining the trend.
Gearing up the troops
With so much already happening and more to come, now’s the time check in with A/P and A/R to make sure they’re on top of it all.
Again, the key reminder to address with both groups is that each state is unique. Individual states have to determine their own:
- thresholds – both for dollar amount and transition count
- effective date – when collection is enforced and if there’s any leeway, and
- retroactivity – luckily, most so far are choosing to only apply the rules prospectively.
It’s up to A/P and A/R to know the specific thresholds, deadlines and details of the states your company does business in or with. (And going forward, they’ll also need to keep an eye on states that haven’t yet made rules to see if they do end up enacting more sales tax legislation.)
You’ll want to see that these departments establish a system to track all that information.
With a solid reference point, you can rest assured A/R and A/P are both on top of charges and payments, so your company stays in good standings with the feds and your bills stay accurate.
Stay tuned. We’ll update you as things change on the sales tax front.
For a complete state-by-state guide to online sales tax, you can access an exclusive report here.
