Sales Tax Tips: Are You Making This Common Mistake?
Our customers often ask us for sales tax tips. We at Thatcher have some definite ideas about how direct selling firms can stay in compliance with rules around collecting and remitting sales tax. For specific answers related to sales tax, we refer to the experts at Avalara.
Avalara is a Thatcher partner that provides automated, cloud-based tax compliance solutions for companies around the world. Avalara’s tax calculation functionality is integrated with the Thatcher Prowess platform to give you reassurance that your direct selling firm is staying in compliance with city, regional, and state sales tax codes no matter where you and your distributors are doing business.
The Best of All Direct Sales Tax Tips
According to our contacts at Avalara, out of all the sales tax tips for direct selling we could offer in this article, the most important is this: It’s overwhelmingly likely that your direct sales firm has an unrecognized tax problem.
This is not to say that your firm is doing things wrong; it’s simply a warning that even if you think you’re doing everything right, it pays to check up on your processes.
Many direct selling firms simply upload the latest rate table to their back-office system and assume they’re calculating taxes correctly. Or, they may assign a staff member to research sales tax rates and manually update them in the system.
But these approaches are shortsighted at best. What happens when sweeping changes come to the industry? We’re seeing the answer to that question in the fallout from South Dakota vs. Wayfair, Inc.
What South Dakota vs. Wayfair, Inc. Means for Your Business
In June 2018, the U.S. Supreme Court decided in South Dakota v. Wayfair, Inc. that states could charge sales tax on items and services sold to buyers within their borders by sellers who don’t have a physical presence in that state.
You can connect the dots here. Suppose your direct sales firm is headquartered in Texas. You’re no doubt collecting taxes on purchases made within your state—and you may think you don’t need any more sales tax tips for now.
But what about the sales your distributors make to customers in Oklahoma? Arkansas? Louisiana? For that matter, anywhere in the U.S.?
Any of these states can charge sales tax on your distributors’ sales to their residents. How many of them actually will? And what’s your plan for keeping up with their requirements?
To answer these questions, you’ll need to know what establishes sales tax nexus in each state.
Understanding the Sales Tax Nexus
You may already know that nexus is a connection between a seller and a state that obligates the seller to register, collect, and remit sales tax on sales made in the state. What you may not realize is that what establishes nexus changed after the Wayfair decision.
It used to be that if you had a physical presence in a state, you knew you would have to collect and remit sales taxes there. But now, what’s known as economic nexus is triggered by either a certain number of transactions in a state, or the overall dollar value of those transactions.
In either case, you now have many additional tax rules to keep up with—especially when you consider that for each state in which your distributors are making sales, there may very well be county and city sales tax requirements to keep up with, too.
Where Does This Leave You?
One of the best tax tips we can offer is this: Don’t try to survive our changing tax landscape on your own. Work with a partner such as Avalara to calculate your tax liability automatically.
Avalara can relieve your sales tax headaches by helping you at all stages of the tax cycle, from understanding what your obligations are in the first place to actually remitting your payments. As city, regional, and state tax laws evolve, Avalara’s dozens of specialists incorporate these changes into their system so that you don’t have to worry about them.
The subscription-based Avalara service integrates with the Thatcher Prowess platform to support your sales tax needs no matter where in the world you’re doing business. We’ll continue to partner with companies like Avalara to give you the greatest value for your investment in direct sales technology.