Requirements within state sales tax regulations have changed. The Supreme Court reversed the law (Quill v. North Dakota) requiring retailers to have a physical presence within a state before the state can collect sales tax from businesses. South Dakota v. Wayfair overturned Quill v. North Dakota and opened the door for states to now collect and remit sales tax when business is conducted within their state without a physical presence.
Sales Tax Nexus
Sales tax nexus, which can be thought of as legitimate physical presence, refers to laws that require retailers doing business within a state to collect and pay taxes on sales within the state where the business is being conducted. This means that if you pass a mandated threshold of economic or total revenue transactions within that state, you are now legally obligated to collect and remit sales tax to that state. Put simply, if you work in Tennessee and sell goods or services in Georgia, you must file and pay Georgia state taxes after a set threshold of income made there. Currently, each state has some autonomy in deciding requirements to remit and collect taxes.
What the Wayfair Decision Changes for Businesses
The Commerce Clause in the U.S. Constitution limits state regulation on out-of-state business. The Wayfair ruling changes things beyond simply applying tax to online purchases. It also applies these tax laws to companies that do above a certain amount of transactions via out-of-state sales. Businesses in forty-three states thus far have enacted or proposed economic sales tax nexus standards, with more states expected to join.
Any entity conducting business across state lines must review the taxability of sales, how to present this documentation to customers, and gain clarity to the extent in which the firm operates outside of its state. With all this changing, it may be time to consider automation of the collection of taxes.
Requirements for Regulations
There are requirements to adopting this process to make it legal and Constitutionally sound. The regulations include protecting businesses with only a small number of transactions or low-volume sales in the state, retroactive application of sales taxes, access to software paid for by the state for sales tax administration, and utilization of a Streamlined Sales and Use Tax Agreement standard of taxes that reduces administrative and compliance costs.
Speak with Your Knoxville CPA for Help
Lawhorn CPA Group conducts business across state lines with offices in Georgia, Tennessee, and Wyoming. We can provide support and guidance to get your business established to uphold the new laws and standards that apply. If you are curious about how to do this, or have questions regarding the new sales tax nexus, reach out via phone at 865-212-4687 to schedule time to meet with one of our tax professionals. You can also reach out online HERE.