Houston Chronicle Sunday

Wayfair decision shakes up retail

- Josh Hennessey is a State and Local Tax partner in the KPMG Houston office.

The world changed dramatical­ly for online sellers when the U.S. Supreme Court in June decided that internet retailers can be required to collect sales taxes even in states where they have no physical presence.

The South Dakota v. Wayfair decision overturned the Court’s 1967 Bellas Hess and 1992 Quill decisions — essentiall­y acknowledg­ing the realities of our now fully digital economy.

As a result of the ruling, millions more online shoppers will likely be required to start paying state sales taxes when they make purchases, because many online retailers, marketplac­e providers and internatio­nal sellers will now need to start collecting and remitting those taxes.

Equally important, complying with the court’s ruling will likely have a substantia­l impact on companies in terms of time, technology and expense. Businesses will now need to closely examine and retrofit their operations to determine where they have to collect tax, whether their goods are taxable, and how they are going to handle the new tax computatio­n, filing, and remittance obligation­s.

What does all that mean in terms of day-to-day operations? Well, first, companies will need to be ready to modify their current indirect tax compliance and accounting approaches and infrastruc­ture. They’ll likely need a system capable of tracking delivery locations, determinin­g taxability, identifyin­g tax rates, ensuring appropriat­e accounting, and providing the informatio­n required to file returns in several jurisdicti­ons.

Determinin­g the right fit will take some time and careful considerat­ion, and there won’t be an easy “one size fits all” approach. Each business is unique, so each business will need to determine its own approach to sales tax compliance.

A post-Wayfair action plan

Here’s a list of next steps that may help companies prepare for the new state tax landscape:

1. Review business activities to determine where filing obligation­s may now exist.

2. Review the potential business implicatio­ns, including additional costs related to technology updates and the increased compliance requiremen­ts, and discuss the results with key internal stakeholde­rs.

3. Analyze the potential taxability of products and services in jurisdicti­ons where they could now be required to collect the taxes, including current invoicing methods that may bundle taxable and nontaxable products.

4. Determine whether current technology and personnel resources can support increased taxrelated analysis, compliance, document retention, and audit activity.

5. Develop a plan for maintainin­g sales tax compliance, including the potential use of third-party service providers.

6. Consider how the company will monitor sales tax changes (such as tax

rates, law changes, and procedural issues) in relevant jurisdicti­ons. How soon could this happen?

Every jurisdicti­on may not begin requiring tax collection immediatel­y, but some states and municipali­ties could move within the next 60 to 90 days.

So far, some 15 states have enacted a law or adopted a regulation with a nexus standard, similar to South Dakota’s, that would require sellers who have some volume of receipts or number of transactio­ns in the state to collect tax on sales into the state even if they lack a physical presence there.

These standards take effect on various dates, and some are the subject of prior, still unresolved litigation at the state level.

Another group of states have existing “doing business” statutes that are broad enough to encompass an economic nexus approach, but they were not enforced in that broad manner because of the Quill standard. We would expect those states to provide guidance to taxpayers and perhaps seek legislatio­n or a rulemaking before attempting to apply the Wayfair approach.

Finally, other states would seem to require state legislativ­e or regulatory action prior to imposing an economic nexus approach.

As the changes take place, retailers and the states should also keep an eye on possible congressio­nal efforts to pass legislatio­n that sets a national standard to reflect the new reality of online and remote commerce. This issue has been before Congress for at least three decades, with no consensus reached or approach developed, but it’s possible that the court’s Wayfair decision may add some urgency to the discussion.

 ??  ?? JOSH HENNESSEY
JOSH HENNESSEY

Newspapers in English

Newspapers from United States