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Navigating the Sales Tax Landscape Post Wayfair: 3 Important FAQs

August 05, 2019

Do you conduct business in more than one state? Having trouble understanding the tax laws post Wayfair? Here are three FAQs and answers that will help.

Just about one year ago, the U.S. Supreme Court made a decision in the South Dakota v. Wayfair, Inc. et al case, affirming that an out of state company can now be required to collect sales tax (related to live or online sales) regardless of whether or not the company (or its representatives) has a physical presence in the state where the sale took place. This has understandably caused confusion among multi state filers…we’re here to help answer some of your questions.

The most common question tax advisors receive is simply “Where should I be filing?”

Other important questions, but those seldom asked are,

  • “I am doing business in State A, am I required to file there?”

or

  • “I just purchased Assets in State B, what tax liability do I now have?”

or even

  • “We just hired a remote employee to do This or That, in State C, how does that change our tax landscape?”

3 questions you should ask yourself

Multistate taxation is highly dependent on the type of tax involved and the activity conducted that is potentially triggering the tax impact.

There are some questions you should be asking yourself, specifically,

  1. Where do you derive sales?

There are two important types of taxes you should be paying attention to…

  • Direct taxes such as taxes on income, gross receipt, net worth, franchise or some other measure that imposed on the business;
  • Indirect taxes such as sales and use, that are more transactional in nature and typically represents an obligation to collect from your customer and remit to the state.

Bear in mind that there are many variables here. States may say that the level of sales activity isn’t sufficient yet to be subject to a tax. They may also be federally prohibited from imposing a tax on you based on the type of business and the activities engaged in while you establish a market. Perhaps all your customers are exempt. They may suggest that you are required to file one type of tax, but not another. There’s a lot to factor in!

  1. Where do your employees or subcontracted representatives or agents perform duties at your request?

Remote employees are becoming much more prevalent in today’s businesses, but that flexibility also brings with it, a changing tax landscape and footprint. If you have a remote employee living and working in a state and using their home or the local Starbucks as their office, then you most likely have a payroll tax responsibility to that state, and should also be withholding taxes in that state for that employee. This is not the same as an employee who lives in one state who commutes to work in your business location in a bordering state, but rather an employee that lives and works far enough away that a commute would not be feasible.

  1. Where do you own property?

If you own property in a state, there is a very strong possibility that you will owe some sort of property tax. Whether or not the State or the municipality is assessing the tax or whether the property type is subject to a State or municipal tax are the real questions, but they become much more narrowly defined ones.

Those three questions alone, while not an exact science, will almost always settle at least some of your filing confusion.

Now that we crossed that off, let’s talk about your business, your activities, your operations, and your goals and future plans and evaluate the various tax impacts associated on a state by state basis. Reach out to us at any time.

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