Throughout Europe, awareness of the sales and use tax implications of the U.S. Supreme Court’s June Wayfair decision remains relatively low and misconceptions regarding the ruling continue to grow. The fact is that the Wayfair decision represents a historic shift in how U.S. states can require remote sellers throughout the world to register for sales tax, charge the tax and start filing local sales tax returns. Neglecting the numerous sales and use tax rules changes the Wayfair decision is now stimulating can expose some European remote sellers to compliance problems and, worse, reputational risks.
Here are some of the most common misperceptions:
- Wayfair does not apply to my company since we’re not based in the United States: False
- The U.S. subsidiary of our EU company can handle this: Not necessarily
- U.S. states have no way of addressing non-compliance since they don’t usually enforce judgments abroad: Not true
Whether or not a U.S. subsidiary can monitor and address the flood of sales and use tax rules updates streaming from dozens of states depends largely on the size of the operation’s tax function; some of those functions simply do not have the resources to monitor and manage all these changes. Regarding non-compliance repercussions, U.S. states do have the right to require foreign companies to collect and remit sales tax. While it remains to be seen how different states will handle enforcement, keep in mind that states could potentially pursue registered agents of the foreign company or place a tax lien on the non-compliant company’s U.S. bank accounts.
Tax functions in the European-based companies that conduct remote sales in the U.S. should look at the implications of Wayfair, track state-by-state sales tax requirement changes and determine if their sales are affected. Affected online retailers should consider taking the following steps:
- Start gathering data on turnover and/or the number of transactions that occur within states where the company sells remotely.
- Prioritize states where the company has the greatest economic presence and create a plan to register to collect and remit sales tax (e.g., via a marketplace, or with a hosted or cloud-based technology solution).
- Evaluate the financial statement impact of remote seller compliance.
- Review invoicing processes and controls, as invoicing errors that occur after the decision is finalized likely will result in more significant customer satisfaction and cash flow risks.
Just as tax leaders in the U.S. will be monitoring the impacts of South Dakota v. Wayfair for some time to come, those based in the EU should be prepared to do the same. My colleagues and I will keep you updated as new developments unfold.
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.