Automating Your Sales Tax Compliance Requirements for ASPDNSF - Matthew Grattan, Avalara
Sales Tax Issues for Retailers & Remote Sellerscpawebengage.com/PPT/salestaxrr.pdf · Making sales...
Transcript of Sales Tax Issues for Retailers & Remote Sellerscpawebengage.com/PPT/salestaxrr.pdf · Making sales...
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© Avalara
Monika Miles
Miles Consulting Group, Inc.
Sales Tax Issues for Retailers & Remote Sellers
September 19, 2014
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Making sales tax less taxing
About the sponsor
2
• Avalara is the worldwide leader in sales and use
tax compliance automation.
• Our mission is to provide the fastest, easiest, most
accurate and affordable technology solution to
sales tax compliance.
• Through partnership with accountants, we are
revolutionizing a process that can be can be a
huge drain for businesses big and small.
• Our solutions include end-to-end compliance
automation from calculation to returns, exemption
certificate management, and more.
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Making sales tax less taxing
Presenting Today - Monika Miles
Founder – Miles Consulting Group
www.milesconsultinggroup.com
Contributor – Sales Tax Support – “Sales Tax 101”
www.salestaxsupport.com
Professional affiliations:
AICPA, Texas Society of CPAs, Vistage International, NAWBO-Silicon Valley,
Accounting & Financial Women’s Alliance (Past National President)
Honored to be recognized as one of the 25 Most Powerful Women in
Accounting by CPA Practice Advisor in both 2012 and 2013
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Making sales tax less taxing
Topics for today
• Current Landscape – Nexus, Quill
• Internet Sales and “Amazon Laws”
• Intro to SSTP
• Marketplace Fairness Act of 2013
• Coupons/Discounts
• Compliance Issues
• Q & A
4CONFIDENTIAL & PROPRIETARY |
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Making sales tax less taxing
Sales tax is one of the most common
taxes encountered everyday by
businesses and consumers alike.
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Making sales tax less taxing
The concept of sales tax is prevalent
in daily conversations because:
• States Need Revenue
• Increased On-line Transactions
• Smaller companies are able to expand their sales
footprints quickly because of increased
technology.
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Making sales tax less taxing
• Sales tax and complementary use tax are
imposed by state and local jurisdictions on
retailers for the privilege of selling “tangible
personal property” in the jurisdiction.
• 45 states and DC impose a sales tax.
Sales Tax
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Making sales tax less taxing
Tangible Personal Property
• The term “tangible personal property” or “TPP” refers to
property which can be seen, weighed, measured, felt or
touched, or perceived by the senses.
• In general, unless otherwise exempt, sales of TPP are
subject to sales tax.
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Making sales tax less taxing
“Nexus”
• “The sufficient connection that an entity must
have in order for a state to impose a tax”
• Generally physical contact between a taxpayer
and state must occur
• Defined by U.S. Constitutional principles and
U.S. Supreme Court cases
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Making sales tax less taxing
Nexus – OK! Now What?
• Once nexus is established, seller is
obligated to collect sales tax.
• Unless there is a specific exemption.
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Making sales tax less taxing
Sales Tax Exemptions
• Due to the nature of the seller
• Due to the nature of the buyer
• Nature of the property/service transferred/performed
• Intended use by the purchaser
• Nature of the transaction
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Making sales tax less taxing
U. S. Constitutional Basis for Sales Tax
Our current system stems from various state statutes and
regulations:
• From the U.S. Constitution:
- Due Process Clause
- Commerce Clause
• From U.S. Supreme Court Decisions
in multi-jurisdictional cases:
- Quill Corp v. North Dakota 504 U.S. 298 (1992)
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Making sales tax less taxing
Due Process Clause
• No state shall: “deprive any person of life, liberty
or property, without due process of law”
• Taxes = “property”
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Making sales tax less taxing
The Commerce Clause
• Authorizes Congress to regulate
commerce among the states.
• Prohibits states from enacting laws that
might unduly burden or inhibit the free
flow of trade among the states.
(Dormant Commerce Clause)
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Making sales tax less taxing
Summary
• A state cannot impose a tax obligation on an out-
of-state corporation unless the Due Process
Clause “minimal connection” and the Commerce
Clause “substantial nexus requirements” are
satisfied.
• The landmark case in this regard is Quill Corp. v.
North Dakota 504 U.S. 298 (1992)
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Making sales tax less taxing
Quill
In Quill, the U.S. Supreme Court concluded that in
addition to any minimum connection with a state
(Due Process Clause), a business must have
substantial physical presence nexus (under the
Commerce Clause) before the state could impose
sales/use tax collection requirements.
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Making sales tax less taxing
Catalog Sales
• In Quill, the Supreme Court concluded that
Congress was better qualified to resolve the
matter of state taxation of catalog sales.
• Congress has taken no action!
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Making sales tax less taxing
Catalog vs. the Internet
VS
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Making sales tax less taxing
The Growth of Internet Sales
• Non-existent when the High Court decided Quill.
• No tax collection obligation on seller without a
physical presence in a state (like catalog sellers).
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Making sales tax less taxing
Example:
• Susie, who resides in Georgia, received a catalog from
ShoesGalore and has selected a pair to order.
• She reviews the order form and notes in the fine print
that “customers in TX, FL, and IL, must add sales tax.”
• Susie happily sends in her order form and feels like she
has saved the sales tax.
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Making sales tax less taxing
The Use Tax
• Complimentary to Sales Tax
• Paid by the Purchaser Directly
• Protects In-State Companies
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Making sales tax less taxing
Uncollected Use Tax
Top 5 States
(Revenue Lost)
Est. Uncollected Sales
Tax ($$Billions) - 2012
CA $ 4.2
TX $ 1.8
NY $ 1.8
FL $ 1.5
IL $ 1.0
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Making sales tax less taxing
The “Amazon Dilemma”
• Large vs. Small Companies
• “Tax Loopholes”
• Compliance Burden
• Use Tax
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Making sales tax less taxing
State “Amazon Laws”
Amazon laws with “click through” or affiliate nexus
provisions are aimed at retailers who contract with
in-state marketing affiliates.
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Making sales tax less taxing
State “Amazon Laws” –Definitions
“Click Through” Nexus: in-state marketing affiliates create physical
presence
“Marketing Affiliate”: related (or unrelated) companies that post web
links; banners, etc. that refer back to the online stores of large
retailers.
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Making sales tax less taxing
State “Amazon Laws” –Definitions
“Affiliate Nexus”: a related company (i.e.; ownership) operating in a
state can create in-state presence for the remote seller
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Making sales tax less taxing
State “Amazon Laws”Nuances
Usually a dollar threshold of sales volume must be exceeded.
(Generally low)
Can sometimes rebut the nexus presumption, but it is difficult in
reality.
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Making sales tax less taxing
State “Amazon Laws”More Nuances
The affiliate that “creates nexus” for the retailer does not collect &
remit tax. The retailer is responsible for collecting and remitting the
sale tax.
The “affiliate” pays its own taxes (corporate, personal, etc.) on net
income, including commission.
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Making sales tax less taxing
State “Amazon Laws”Picture this…
Shoes Galore:• Based in TX
• Want to sell in
CA
• Contracts with
me in CA for a
banner ad.
Miles Consulting:• Based in CA
• Link to SG
• Help generate $100K
of sales
• Earn 1% Commission
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Making sales tax less taxing
State “Amazon Laws”
Shoes Galore:• Has exceeded
the CA $10K
threshold and
must collect &
remit sales tax
Miles Consulting:• Does not collect tax
on the shoe sales
• Will report income of
$1,000 in
commissions in CA
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Making sales tax less taxing
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Making sales tax less taxing
States with Amazon Laws“Early Adopters”
State Year
Enacted
$ Threshold
(Annual)
New York 2008 $10,000
North Carolina 2009 $10,000
Rhode Island 2009 $ 5,000
Colorado* 2010
Illinois 2010 $10,000
* CO – Notification & Reporting - Challenged
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Making sales tax less taxing
States with Amazon Laws2011
State Year
Enacted
$ Threshold
(Annual)
Arkansas 2011 $10,000
Connecticut 2011 $ 2,000
Illinois 2011 $10,000
Vermont 2011 $10,000
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Making sales tax less taxing
States with Amazon Laws2012
State Year
Enacted
$ Threshold
(Annual)
California* 2012 $10,000
Georgia 2012 $50,000
Pennsylvania** 2012 none
* CA – Originally enacted in 2011, effective 2012
** PA – No enacted statute, but PA issued Sales Tax Bulletin
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Making sales tax less taxing
States with Amazon Laws2013
State Year
Enacted
$ Threshold
(Annual)
Kansas 2013 $10,000
Maine 2013 $10,000
Minnesota 2013 $10,000
Missouri 2013 $10,000
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Making sales tax less taxing
States with Amazon Laws2014
State Year
Enacted
$ Threshold
(Annual)
New Jersey
(7/1/14)
2014 $10,000
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Making sales tax less taxing
Why It’s Important?
“Sales tax is a pass through tax. The thing that concerns most
companies is the burden and cost of collection and remittance of
the taxes”
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Making sales tax less taxing
Stretch Break?
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Making sales tax less taxing
Streamlined Sales Tax Project
• SSTP, “Born” in 2000 out of the desire to make
the widely disparate state and local sales and
use tax compliance requirements more uniform
and predictable.
• Conforming states have enacted laws which
bring their sales tax systems into conformity
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Making sales tax less taxing
The Stated Goal of the SSTP:
• Design and implement a voluntary sales and use
tax system nationwide, including:- Uniform tax definitions
- Simplified audit and administrative procedures
- Simplified tax filings
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Making sales tax less taxing
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Making sales tax less taxing
SSTP - Aspects
1. Uniform definitions within tax law
2. Rate simplification
3. State Level Administration
4. Registration
5. Uniform Audit Procedure
6. Technology models for Remittance
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Making sales tax less taxing
SSTP Concerns
1. Although Enacted in 2005,
SSTP Compliance Still Voluntary
2. Two Distinct Sales/Use Systems Running Parallel
3. Impacts on Middle Market Businesses
4. Limited Taxpayer Education
5. SSTP Does Not Address Other Taxes
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Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
• History
• Requirements
• Simplification?
• Politics
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Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
History:
• Since 2010, several bills have been introduced
• This one has been passed by the US Senate (May 2013)
• Stalled in US House of Reps.
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Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
Requirements:
• Simplification
• Software
• Small Seller Exception
• Effective Date?
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Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
Simplification & Software
• Single Administration Entity
• Uniform Rates
• Certification procedures for CSPs
• Liability relief provisions
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Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
Small Seller Exception
• Annual U.S. remote gross receipts of $1 Million or less are exempt from
collecting sales tax
• BUT…there are some definitional pitfalls
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Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
• Effective Date?
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Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
• Is it “Fair”?
• Is it Simple?
• Can it pass?
• Why should you care?
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Making sales tax less taxing
Federal ActivitySupreme Court Denies Cert.
• Dec, 2013 - Amazon & Overstock.com appealed the ruling of NY
State Court of Appeals re: Click Thru
• US Supreme Court Refused to Hear
• Back to Quill – Congress should fix this.
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Making sales tax less taxing
Federal ActivityMarketplace Fairness in 2014?
• Chairman Goodlatte’s 7 concerns
• March hearings
• Alternatives to the current MFA
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Making sales tax less taxing
Some Retailer Specific Issues
“Deal of the Day”
Promotions
Sales Tax Holidays
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Making sales tax less taxing
“Deal of the Day”
• Consider Groupon or Living Social
• Example:
– Dining merchant offers a “deal” for $100 meal
– Groupon charges purchaser (subscriber) $50
– Groupon keeps $25 as its profit (fee)
– Merchant receives $25
– Prior to expiration, subscriber goes to merchant
restaurant and uses coupon to purchase $100 meal
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Making sales tax less taxing
“Deal of the Day”
• Should merchant charge sales tax on:
a.) $100 – the amount of merchandise purchased
b.) $50 – the amount the subscriber paid for the
“deal”
c.) $25 – the amount the merchant receives from
Groupon
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Making sales tax less taxing
“Deal of the Day”
Answer?
It depends!
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Making sales tax less taxing
“Deal of the Day”
• General consensus that no sales tax is due upon
the sale of the coupon or “deal”; so Groupon
doesn’t charge tax
• Some other issues:
– Vouchers for a mixed service (taxable & non)?
– Merchant allows customer to apply part of voucher
toward sales tax?
– Multiple uses on same voucher?
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Making sales tax less taxing
“Sales Tax Holidays”
• Often related to “back to school”, and limited to
certain items
• Generally approved annually by state tax
legislatures
• Can be difficult for on-line retailers to keep track
of – must apply these rules to internet
transactions.
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Making sales tax less taxing
“Sales Tax Holidays”
• May be limited to state portion of sales tax (and
not include county or city)
• Examples of participating states (2014):
– AL, AR, CT, FL, GA, IA, LA, MD, MS, OK, SC, TX
– Check state websites for exact dates
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Making sales tax less taxing
Sales Tax Compliance
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Making sales tax less taxing
Collecting & Remitting = Compliance
Compliance 101
• Nexus?
• Rate?
• Exemptions?
• Registration
• Forms - Electronic vs. Paper
• Due Dates (vary)
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Making sales tax less taxing
Collecting & Remitting = Compliance
Compliance 201
• Exempt Items
• Gi-Go?
• Front End Due Diligence
• Determine the Right Software
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Making sales tax less taxing
How Can A Good Consultant Help?
• Perform Nexus Reviews
• Perform Taxability Studies
• Determine Appropriate Exemptions
• Recommend Compliance Model/Software
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Making sales tax less taxing
Miles Consulting is a resource
for you:
• Monthly newsletter
• Weekly topical blog
• Complimentary consultation
Some Final Thoughts…
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Making sales tax less taxing
In Summary :
It’s a crazy, Interesting Time
• States are aggressively pursuing revenue
• Congress is getting involved
• Don’t try this at home! Hire a professional
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Making sales tax less taxing
About Avalara
We’re a team of developers, accountants, support
specialists, marketers, salespeople, researchers, and
technologists who know we’re onto something big.
We know that we are part of a team that is
revolutionizing what is a huge drain for businesses big
and small. Managing the compliance of transactional
taxes, from sales and use tax to 1099s and more.
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Making sales tax less taxing
The Solution: End-to-End Compliance
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Making sales tax less taxing
Questions
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Making sales tax less taxing
Thank You!
Monika Miles(408) 266-2259
www.milesconsultinggroup.com