Taxes–They Are A-Changin’
With a nod to Bob Dylan, when it comes to taxes, changes are indeed coming. In June of this year, the Supreme Court issued its ruling in the Wayfair vs. South Dakota case which said that the state of South Dakota, in levying its sales tax on businesses that sell into South Dakota without a physical presence in the state, would not impose an undue burden on interstate commerce. To be sure, the ruling was a narrow one concerning only South Dakota. The justices made their feelings known that tax obligations that are more excessive or overreaching could be injurious to businesses. However, the justices only implied their aversion to more aggressive tax schemes, leaving the door open for states to proceed how they wish.
What Could Happen
It should be no surprise that many states are hungry for revenue. Underpaid pension obligations, changes in the federal tax code, and future Medicaid expenses are just a few of the factors putting pressure on states to look for sources of revenue. Congress has some potential legislation to standardize rules around online taxation just beginning to circulate, but a potential change in leadership leaves the outcome of such a movement unknown. In the absence of any controlling authority at the national level, states will be free to act in their best interest, not necessarily in the best interest of businesses. There are already approximately ten thousand tax jurisdictions across the country. Add to that the potential for no minimum of the amount of out-of-state revenue or number of transactions that can be taxed, the potential for tax collections to be applied retroactively (Massachusetts and Rhode Island are doing this), and you can see the hurdles you may have to jump.
How Can This Affect You?
Even if we avoid a worst-case scenario, it’s clear that businesses will be impacted at some level and will need to adapt. As of this writing, at least twenty-seven states have applied economic nexus statutes that follow the South Dakota model of a minimum of $100,000 in annual sales or 200 transactions within the state. And many states are aggressively applying penalties and interest on businesses that are not complying. Consider the additional costs to your business in terms of the increased burdens of compliance– internal organization, monitoring, reporting, audits, accounting work, new software, changes to your website, the potential for penalties and/or fines, not to mention the opportunity cost associated with time diverted from doing what you do best—merchandising and converting sales.
What You Can Do
First, talk with your eCommerce platform provider about whether they can help to make the necessary changes to your site, advise you on best practices, and help you determine third-party solutions that will be a good fit for your business. If your provider can’t help you, contact Virid for a consultation regarding our services. We partner with tax solution providers like TaxJar and many others, and we can help you find the best solution for your business.
Meet with your tax advisor or tax attorney to discuss your level of exposure and consider conducting an audit to prepare for the potential requests for compliance from different states. Put in place the new procedures, practices and training necessary to make sure you stay out in front of any complications.
Finally, meet with your elected representatives at the state and local levels. Make sure they know about your business, your goals and challenges. Make them aware of burdens that legislation can impose on your ability to thrive and the potential impact on your employees and communities. Their job is to represent your best interests and be your voice where it needs to be heard.
As our friend Bob Dylan might say, with a little foresight, planning and action, hopefully the new tax changes won’t leave you…Blowin’ in the Wind.