Don't Let Sales Tax Compliance Steal Your Deal: A Warning For Business Sellers
Since 2008, many states, in response to the explosion of online sales, enacted a variety of nexus provisions in an effort to require remote sellers to collect sales tax or, provide information on the identity of buyers so that state could pursue either sales tax or excise tax collection efforts. These state legislative efforts are referred to as “Remote Seller Nexus” provisions and include; Click-Through Nexus, Affiliate Nexus, Economic Nexus, and Marketplace Nexus
Each state had their own unique reporting and collection obligation for remote sellers making compliance a nightmare for remote sellers. On June 21, 2018, The United States Supreme Court ruled 5-4 in South Dakota v. Wayfair that states can mandate that remote sellers, without a physical presence in a state, but who generate in-state sales which exceed the greater of 200 transactions or $100,000, must collect and remit sales taxes on transactions in the state. This decision overturned the Court’s 1992 decision in Quill v. North Dakota which required a physical presence of the seller before sales tax was required to be collected and remitted.
In response to the Supreme Court decision, many states have enacted new sales tax nexus thresholds that are in alignment with the recent court ruling. Unfortunately, each state has different rules that define a remote sellers’ liability. The Sales Tax Institute maintains a web site that summarizes each state’s reporting obligations.
This court decision elevates the due diligence aspects for buyers and sellers of businesses who have significant levels of remote sales. If you are a seller, you don’t want your deal to fall apart when due diligence discovers non-compliance with sales tax. These sales tax issues can represent significant dollars and may include late-filing penalties and interest. This would give any buyer a reason to pause and could have the potential to destroy your deal.
You need to take action now. Companies must understand how their products and services are taxed in all the states in which they are sold and create a system that tracks this activity along with complying with the sales tax reporting obligations.