If you have clients who pay sales and use tax, a story on the complexity of sales tax is old news. If your clients are retailers that have a new or expanded ecommerce channel, you are likely already aware of your expanded sales tax collection and remittance obligation. Every state with a sales tax has adopted an economic nexus standard as enabled by the South Dakota v. Wayfair decision decided by the Supreme Court three years ago. What you might not know is that for many e-commerce sellers, there is an avenue that can bring you into compliance in a way that is accurate, cost effective and time efficient,
One path to consider is compliance through a Certified Service Provider (CSP) under the Streamlined Sales Tax (SST) program. That's a lot of acronyms to unpack and understand but it's worth the time.
What is Streamlined Sales Tax (SST)?
SST is an organization composed of 24 state governments that have voluntarily worked together for the last 20 years to modernize and simplify sales and use tax administration. Their work led to the Streamlined Sales and Use Tax Agreement, which serves as a set of foundational principles for simplified sales tax to which every member state must adhere. State membership in their Governing Board is voluntary and their association is self-policing. Essentially, if a member state enacts laws or rules that run contrary to Streamlined principles, it can be sanctioned or removed from the organization by a vote from its fellow members.
The following states are members of this organization:
- New Jersey
- North Carolina
- North Dakota
- Rhode Island
- South Dakota
- Tennessee (Associate Member)
- West Virginia
What is a Certified Service Provider (CSP)?
The SST member states recognized early on that technology would play a crucial role in modern tax administration and to that end created the concept of a Certified Service Provider. CSPs are tax compliance technology providers who work directly with the Streamlined Sales Tax Governing Board to have their technology and tax rules certified as accurate. Just a small handful of providers have opted to participate in this rigorous process.
How do I Know if I Qualify to Participate?
The answer to this question requires understanding one more term - CSP Compensated Seller. Until last year, SST used the term “Volunteer Seller," but after the Wayfair decision made compliance mandatory for many companies, the term no longer made sense. A CSP Compensated Seller is, generally, a company that does not have a physical presence in a given SST member state (e.g., people or property) but may or may not have an obligation to collect and remit tax under existing economic nexus rules. Here are key criteria to help determine if a business potentially qualifies as a CSP Compensated Seller. The business must have:
- No fixed place of business within the state
- Less than 25% of total property in the state (per the legal definition of Property)
- Less than 25% of total payroll in the state (per the legal definition of Payroll)
In addition, the business cannot be a company that is required to collect sales or use tax as a condition of qualifying to be a supplier of goods or services to the state.
As of January 2021, the rules were adjusted to clarify that marketplace facilitators and direct selling companies also qualify, provided they meet the necessary requirements.
Qualification is determined on a state by state basis. Utilize this interactive tool to assess your SST qualification in each state where you do business.
Why work with a CSP?
If you qualify, using a CSP under the SST program provides significant benefits.
1. There is the matter of cost. For every state in which you are a CSP Compensated Seller, the CSP is paid directly by the member state. While this does not make the solution completely free, it absolutely reduces your out of pocket cost.
2. Under the CSP’s contract with the SST, the CSP agrees to support your audit, meaning that the auditors first come to the CSP with any questions or concerns, and not to you. Now sometimes, a CSP will need to talk to its client to fully answer the auditors questions, but many items are fully addressed without your involvement.
3. The CSP also takes on primary audit liability in the event of assessment. By selecting a CSP with fully certified content and that supports your product taxability mapping, errors are rare but when an error exists, the states primarily assess the CSP and not the taxpayer, unless the error can be traced back to erroneous information provided to the CSP by the taxpayer.
In short, working with a CSP will help you stay compliant while also working toward mitigating and managing risk, and all at a reasonable cost.
What should you do next?
First, consider the states where you do not have a physical presence, and utilize this online tool to assess whether you qualify as a CSP compensated seller. Think about where you are not registered for sales tax today but really should be based on your economic nexus. Utilize this S.D v. Wayfair Economic Nexus Threshold Table to understand where you might have some compliance risk. Finally, reach out to a CSP for more information or if you have specific questions about how your organization may be able to ease your sales tax filing burden.