Dillon Tax Consulting provides tax advisory and compliance services and solutions to companies across all industries, ranging in revenue size from several hundred thousand dollars to multi-billion dollars. We are your subject matter experts regarding the following State & Local Tax matters:
2022 is expected to bring heightened enforcement and increased sales tax audit activity for remote sellers. Charles Maniace, a vice president at the tax software firm Sovos, states that “States are now truly ready to [start] being fairly aggressive in their enforcement against existing online sellers.” [Forbes, Sales Taxes in 2022 – Issues to Watch for Online Retailers, by Liz Farmer (November 30, 2021)]
read moreAs 2021 comes to an end, lets recap a few important sales tax changes and offer insight into what taxpayers can expect for 2022:
In a decision involving the true object, or “essence of the transaction” test, the Texas court of appeals upheld the trial court’s decision in favor of the taxpayer refund claim for sales tax assessed on the provision of bill pay services. In Hegar v. CheckFree Services Corporation, NO. 14-15-00027-CV (Tex. Ct. App., April 19, 2016), the Court of Appeals affirmed the trial court’s judgment in favor of CheckFree, awarding it a refund of sales tax paid on bill pay services provided to banks. CheckFree contracted with several banks to provide bill pay services through the banks’ on-line banking ...
read moreOhio is the most recent of states to have enacted a click-through nexus provision. To date, 24 other states have adopted (by statute or otherwise) some form of either an affiliate nexus or a click-through nexus provision.
Under an affiliate nexus provision, a rebuttable presumption of nexus is typically established for an out-of-state seller that has an in-state affiliate selling similar products, storing inventory, or engaging in other activities that potentially assist the out-of-state entity in building or maintaining a marketplace in the state. Under a click-through nexus provision, a rebuttable presumption of nexus is established for an out-of-state seller ...
read moreEffective January 1, 2015, out-of-state retailers are once again presumed to have sales tax nexus in Illinois if they satisfy the following criteria:
As we predicted at the beginning of last year, 2022 brought heightened enforcement and increased sales tax audit activity for remote sellers and all sellers. Heading into 2022, sales tax experts, this author included, were predicting that states were ready “to [start] being fairly aggressive in their enforcement against existing online sellers.” [Forbes, Sales Taxes in 2022 – Issues to Watch for Online Retailers, by Liz Farmer (November 30, 2021)]. Not only did Dillon Tax Consulting represent taxpayers in more sales tax audits than in any prior 30 years of my experience in multistate sales tax, but the states were far more aggressive in their pursuit of additional revenues than in previous experiences. So what are some of the reasons for this, and why do we predict that it will continue in 2023?
2022 is expected to bring heightened enforcement and increased sales tax audit activity for remote sellers. Charles Maniace, a vice president at the tax software firm Sovos, states that “States are now truly ready to [start] being fairly aggressive in their enforcement against existing online sellers.” [Forbes, Sales Taxes in 2022 – Issues to Watch for Online Retailers, by Liz Farmer (November 30, 2021)]
As 2021 comes to an end, lets recap a few important sales tax changes and offer insight into what taxpayers can expect for 2022:
State Economic Nexus Standards - UPDATED AS OF 4/1/22
In the wake of the U.S. Supreme Court's decision in South Dakota v. Wayfair, states may now require remote sellers with no physical presence in a state to collect sales tax on sales of taxable products and services delivered to customers in that state. This ruling does not simply affect online retailers, but all sellers of taxable goods and services who make sales into state in which they lack physical presence. Attached as an informational reference tool is a listing of the states that have adopted some form of economic nexus standard.
State Marketplace Facilitator Compliance Standards - UPDATED AS OF 4/1/22
Since Washington State first adopted a requirement that marketplace providers must collect and remit sales tax directly to the Department for all sales made on their marketplace, all states have chosen to impose sales tax compliance obligations on marketplace providers or facilitators. Attached as an informational reference tool is a listing of the states that have adopted some form of a marketplace facilitator nexud and compliance standard. Though the deifnition of a marketplace facilitator must be determined on a state by state basis (and is beyond the scope of this article), typically a marketplace facilitator is a business that provides a forum or platform on which third party sellers can advertise and sell their products, and on which the marketplace also provides billing and collection (directly or indirectly), or sets prices, or provides inventory storage and/or fulfillment services, among other things. The more recent trend among states, including California, is to adopt a broader definition of “marketplace facilitator”, including any business that lists a marketplace seller’s items for sale on their platforms.
State Notice & Reporting Requirements
A number of states have also adopted Notice & Reporting Requirements, which compel remote sellers, typically whose annual sales exceed a certain threshold - often as low as $10,000 - to elect to either (1) to collect and remit sales tax on sales to customers in the state, despite lacking a physical presence, or (2) to notify customers on their website and on each invoice of the customer’s use tax reporting obligation, and to provide annual information to each customer and to the Department of Revenue regarding all sales customers in the state. Failure to do so results in penalties that typically are larger than the remote sellers sales in that state. For your consideration, attached as an informational tool is a listing of the states that have adopted notice and reporting requirements.
WHAT YOU MUST KNOW
As such, it is incumbent on every remote seller to proactively engage someone - externally or internally - to closely monitor these and every state regarding implementation and enforcement of these provisions. Furthermore, every remote seller should implement processes to proactively monitor its sales activity - by revenue and transaction amount - both historically and prospectively, to ensure that they are meeting their obligations in each state and mitigating any historical exposure. Lastly, to the extent that a remote seller has or had physical presence nexus in a state (eg., by virtue of inventory in a third party fulfillment center), that seller should engage an expert to discuss the options to register and/or negotiate resolution of historical liabilities.
Maryland will begin imposing sales tax on the sale of digital products, starting March 14, 2021. This is an abrupt change in tax policy for a state that has historically steered away from imposing sales tax on electronically delivered and remotely accessible software, digital products, and cloud-based data and information services. These changes may be found primarily in Maryland Tax Code Sections 11-101(h) and 11-101(n).
The Comptroller’s office has published guidance on HB 932 21st Century Fairness Act which imposes sales and use tax on the sale of digital products. The guidance can be found here:
As we have previously reported, since the U.S. Supreme Court’s landmark decision in South Dakota v. Wayfair, 585 U.S. __ (June 21, 2018), forty-four (44) states (all except Florida and Missouri) have adopted economic nexus provisions for sales tax compliance purposes. Even the Alaskan local jurisdictions have gotten in on the action, adopting an intergovernmental agreement to establish a Commission that will provide governance over a streamlined, single-level administration of sales tax collection and remittance.
As we have previously reported, since the U.S. Supreme Court’s landmark decision in South Dakota v. Wayfair, 585 U.S. __ (June 21, 2018), forty-four (44) states have adopted economic nexus provisions for sales tax compliance purposes. The biggest trends right now continue to be that states are revising their thresholds and also adopting marketplace nexus provisions.
Recently enacted Tennessee and Louisiana legislation imposes compliance obligations on marketplace facilitators. In addition, recent Tennessee legislation reduces the economic nexus threshold for remote sellers and remote marketplace facilitators, while Louisiana and Illinois have changed or reiterated the compliance obligations impacting remote sellers and marketplace facilitators in these states.
The Current State of Things
As I predicted in my March 25th post, Sales Tax Strategies During the Economic Disruption of the COVID-19 Outbreak, every state is revising its FY 2020 revenue forecasts in response to declining tax collections for March and April. [https://www.ncsl.org/research/fiscal-policy/coronavirus-covid-19-state-budget-updates-and-revenue-projections637208306.aspx] As reported by the National Conference for State Legislatures, some examples of these shortfalls include: