How Retailers Can Mitigate Post-Wayfair Audit Risks

Business leaders have been understandably consumed by keeping employees safe during a pandemic, enacting continuity plans, shifting to remote-working models, responding to economic volatility and much more in recent months. Of course, traditional challenges, including tax compliance complexities, still lurk.

Thanks to the U.S. Supreme Court’s 2018 Wayfair decision, many retailers that were not subject to traditional tax compliance requirements now need to comply since nearly every U.S. state has passed legislation containing post-Wayfair economic nexus rules. Companies that are subject to these new requirements but fail to take sufficient action will be exposed to significant audit risks.

While compliance with post-Wayfair sales tax laws is required, it can also be difficult. The country’s many tax jurisdictions have different rates, and those rates constantly change. Product taxability also can be tricky to determine and sales tax exemptions can be difficult to track. State departments of revenue are less concerned with these challenges than they are in ensuring that organizations demonstrate unassailable accuracy in their tax calculation, collection and remittance activities.

As COVID-driven revenue gaps grow in numerous states, legislators and revenue departments will become more aggressive in their search for revenue. More auditors will be hired and more companies will be audited. That means that more retailers and marketplace facilitators should be taking prudent actions now, including:

• Gathering data on gross revenue and/or the number of transactions in states where the company sells remotely;
• Prioritizing the states where the company has the most economic presence and creating a plan to register to collect and remit.
• Reviewing current processes, control and data sources to ensure that they address new compliance requirements; and
• Considering the need for voluntary disclosure in states with effective dates that have already passed.

Additionally, companies without tax automation should consider the benefits of automating the tax management lifecycle and weigh those returns against the risk of being subjected to audits and the penalties that are issued when compliance errors are uncovered.

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. THE VIEWS AND OPINIONS EXPRESSED IN TAX MATTERS ARE THOSE OF THE AUTHORS AND DO NOT NECESSARILY REFLECT THE OFFICIAL POLICY, POSITION, OR OPINION OF VERTEX INC.