If you subscribe to our newsletter, attend our seminars, or spend any time talking to us then you know that on June 21, 2018, the Supreme Court issued a ruling in the case, South Dakota v. Wayfair. Historically, nexus, the minimum connection a business must have with a state to be required to abide by that state’s sales and use tax laws had been determined using a physical presence test. However, in addition to a physical presence test, the Supreme Court’s decision upheld an economic test now called “economic nexus”.
The South Dakota v. Wayfair decision upheld South Dakota’s law stating that if a business sold more than $100,000 in goods or services into a state or engaged in 200 or more separate transactions that the business had nexus with South Dakota and therefore, must abide by South Dakota’s sales and use tax laws. This is monumental change in the world of sales tax and many states quickly passed laws to capitalize on this change.
So why is this your last warning? Because now it has been 3 years since the decision and 3 years is how long a typical audit covers. A state like South Dakota who has had a valid law on their books for 3 full years can conduct a full-length audit on many, many more businesses than they have been able to in the past.
Furthermore, because of the pandemic, many states are in need of additional revenue. If they can obtain funds from out-of-state businesses, it would be helpful to their own in-state businesses and their residents. Many out-of-state vendors are going to be seeing increased audits going forward and it would not be surprising to see states initiate those audits at their first opportunity.
Making things more difficult for businesses, each state created their own economic nexus laws so the thresholds can be different in every state.
If you believe you may have an economic nexus issue, it is much easier to address the issue proactively than waiting for an audit to start.
Audit Assessment Reduced More than $1 MILLION!
A business came to us and they were initially assessed over $1.1 MILLION on audit. After reviewing the auditor’s work papers and going through all the documentation the business had available, we determined that the discrepancy that was causing the assessment could not be reconciled.
However, we worked with the client, determined what was available and completely redid the audit work papers using a different methodology with the records that were available. After going back and forth and providing all the support and calculations for our new methodology, the audit was reduced to just over $50,000. It was a reduction of over $1 MILLION!