The most populous states are ready to make their move, bringing new compliance challenges for online businesses.
California, Texas, Florida and New York – home to about one-third of the population of the U.S. – were the slumbering giants of the post-Wayfair world in 2018. Not anymore. All four will introduce new economic nexus rules for out-of-state vendors this year, according to a recent International Tax Review article. The Tax Foundation’s John Buhl, who is quoted in the article, says: “I’d be surprised if there wasn’t at least an idea by the end of each legislative session this year of what a state is going to do or when they’re going to do it.”
The states that have yet to announce changes in their rules following the U.S. Supreme Court’s ruling in South Dakota v. Wayfair are also the ones whose tax codes will present significant challenges for businesses with nexus there for the first time. As of now, the largest states have not joined the Streamlined Sales and Use Tax Agreement (SSUTA), which aims to simplify and consolidate state tax codes. So they don’t necessarily provide an online portal to help businesses calculate sales tax rates and file a single return.
Taxpayers already face challenges and uncertainties around the taxability of their products post-Wayfair. That’s especially true in “home-rule” states, where local authorities not only set their own sales tax rates and taxability requirements but also collect and administer the taxes themselves. The article cites Nancy Manzano, director in the Vertex Chief Tax Office: “Even within a state, from local jurisdiction to local jurisdiction, you could have differences in taxability, à la Colorado and [other 'home-rule’ states].”
And it’s not only the tax calculations that may strain taxpayers’ resources, according to Nancy. “The compliance aspect can be burdensome – the actual filing of the returns, that really can be an armful,” she explains. “And when you think about it, some of the sellers that are being captured by these post-Wayfair rules and legislation are of a size that they may not have any in-house tax people.”
For online businesses of all sizes, the sales tax landscape is starting to look very different from how it looked before June 21, 2018. As such, organizations may want to investigate tax automation software to help manage more complex sales tax requirements.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.