The Financial Accounting Resource Center™ is a comprehensive research service that provides the full text of standards, the latest news from the Accounting Policy & Practice Report ®,...
By Che Odom
The U.S. Supreme Court created work for accountants with its decision to allow states to tax online sales made by companies that lack an in-state presence.
An onslaught of new sales taxes—some applied retroactively—by dozens of states and hundreds of counties will necessitate accounting and compliance challenges that could be particularly difficult for smaller sellers.
“Most retailers are filing sales-tax returns at least in their home state so there will be an explosion of accounting procedures to track the various counties’ sales-tax liabilities, deposits, etc.,” Greg Stanislawski, managing principal at California-based CliftonLarsonAllen LLP, told Bloomberg Tax.
The high court issued a 5-4 ruling June 21 in South Dakota v. Wayfair that threw out its divisive 1992 rule in Quill Corp. v. North Dakota. Quill , which states such as the petitioning South Dakota for years have tried to kill through lawsuits and regulation, prohibited states from imposing sales-tax-collection obligations on vendors lacking an in-state physical presence.
Justice Kennedy, writing for the majority, called Quill “flawed,” adding that it put “both local businesses and many interstate businesses with physical presence at a competitive disadvantage relative to remote sellers.”
The case involved the state of South Dakota’s assessment of sales tax on retailers—Boston-based Wayfair Inc., Utah’s Overstock.com Inc., and Newegg Inc., headquartered in California—for peddling wares into its borders.
Until now, businesses that merely made online sales into a state didn’t have to collect and remit local sales taxes. That will likely change.
“The impact of the Court’s ruling on companies in terms of time, technology, and expense is likely going to be substantial,” Jeffrey C. LeSage, Americas vice chairman of tax of KPMG LLP, told Bloomberg Tax. “Businesses will now need to prepare to closely examine and retrofit their operations.”
Sales tax charges must be tracked and often states require remittance of sales tax on an accrual basis, which means when it is charged not when collected, Harold Hecht, director and practice leader of state and local taxes for Mazars USA LLP, told Bloomberg Tax.
“This will certainly be a burden to smaller sellers that do not have the resources, cash flow to pay these taxes upfront, and may not have the sophisticated software or staffing to properly monitor collection and remittance,” he said.
Smaller sellers that were exclusively wholesalers have just begun to use “Amazon-type channels for direct-to-consumer sales, and many of these will now have significant compliance burdens,” he said.
Tracking the sales taxes must be done not only at the state level, but also the local level, which will require diligence on the part of in-house accountants who may need to set up new accounts to hold the new taxes on the balance sheet, Stanislawski said.
Most e-retailers don’t realize they face obligations to collect and remit sales taxes in hundreds of counties around the country.
“Most of the states have multiple country sales-tax returns, however, a small growing e-commerce company might be forced into the sales-tax returns compliance of a large national e-retailer,” Stanislawski said.
To contact the reporter on this story: Che Odom in Washington, D.C. at firstname.lastname@example.org
To contact the editor responsible for this story: Ali Sartipzadeh at email@example.com
Copyright © 2018 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)