Five years is a long time. It’s longer than the time between summer Olympics. It’s longer than a president’s term. It’s longer than you were in high school (hopefully). Read below for the effect of the Wayfair decision on sales tax.
Five years ago….
On June 21, 2018, the Supreme Court issued a ruling in the case South Dakota v. Wayfair, whereby South Dakota’s law on economic nexus was declared constitutional. As a reminder, South Dakota’s law stated that if a business sold more than $100,000 in goods or services into a state or engaged in 200 or more separate transactions into the state, then the business had nexus with South Dakota and therefore, must abide by South Dakota’s sales and use tax laws. Most states were quick to adopt similar laws.
What’s changed for sales tax?
Since that ruling, the sales tax landscape has changed quite a bit. The biggest change has been predictable: Businesses have registered in additional states and begun filing returns in those states. Our firm has been helping businesses register for sales tax across the country. We determine the taxability of their sales in these new states, and then file their sales and use tax returns. It is never easy for a business to collect and remit sales tax in new state, but we are proud to say the process has been smooth for most of our clients.
A Tale of Two Clients…
However, it’s a very different situation for those clients which did not register, and received a notification of audit. The process has been much harder because their exposure is much greater. Owing tax that was never collected is difficult enough, but the interest and potential penalties on tax over four years (3 years and the current year) can be overwhelming.
For us, it’s been a tale of two clients: Those that registered and began filing tax returns. They have successfully made the transition. While those that took no action and were selected for audit, have had a much more difficult experience.
How can we help unregistered clients?
For those unregistered clients we’ve often negotiated penalty abatement and interest reductions. We’ve also helped those clients by setting up payment plans with the states. As a firm that specializes in sales and use tax matters, you can take it from us: it’s much better to comply with the new nexus laws, register for sales tax in new states, and begin filing returns.
Helping A New Sales Tax Audit Client
Sales Tax Defense LLC is honored to work with many accountants and CPAs. These hardworking professionals generally help their clients in ways that go beyond just accounting. After all, there’s a reason these professionals are often referred to as a business’s “trusted advisor”.
Unfortunately, as is the case in every field, not every professional is… professional. We recently took over the audit representation of a business whose representative didn’t provide documentation to the auditor. This was despite having access to it, and also didn’t communicate with the business. It led to a disastrous assessment of over $680,000 in tax, interest and penalties.
We worked with the client to gather the necessary documentation. By working with the auditor, who was a very professional and reasonable person, we were able to reduce the assessment by over $400,000. The settlement was reached, without having to attend a Bureau of Conciliation and Mediation Services Hearing. This saved the taxpayer both interest on the assessment and professional fees!