How Can You Keep Pace With Sales Tax Reporting Changes?

Tim Roden
Posted by Tim Roden on Oct 17, 2022 2:30:00 PM
Sales tax reporting changes are not slowing down. Even though Wayfair was decided over four years ago, organizations are increasingly utilizing eCommerce channels, selling through marketplaces and crossing nexus thresholds as their businesses grow or expand. Additionally, businesses could see greater complexity in the filing data aggregation process or a higher chance of human error if they continue to rely on manual sales tax processes.

How can accountants and bookkeepers ensure that their clients keep pace with a steady flow of change, while also ensuring their clients’ businesses stay compliant?

Wayfair was just the beginning

At this point, nearly every state has enacted some type of legislation in response to the 2018 Wayfair decision. But that’s hardly the end of sales tax reporting changes to consider. Colorado recently enacted a retail delivery fee, impacting sellers that ship into the state and collect sales tax. There are also social issues that may impact sales tax. For example, more states are considering exemptions for feminine hygiene products, tax rules on firearms are being altered and the taxability of non-fungible tokens (NFTs) is being discussed in Washington state. Let’s also not forget about sales tax holidays – just because a state had one type of sales tax exemption one year does not necessarily mean that it will happen the next year.

Staying on top of sales tax regulation will help your clients meet their reporting requirements, especially as social, political, and economic factors continue to play a role.

What about marketplace facilitators?

Marketplace facilitators are companies that contract with third-party “marketplace sellers” to promote their sale of physical property, digital goods, and services through an online shopping portal maintained by the marketplace provider. For example, Amazon, eBay, and Etsy are all considered marketplace facilitators.

In the same way that economic nexus rules can vary from one state to the next, so can marketplace facilitator obligations. Reporting thresholds can differ, as well as how a marketplace facilitator reports tax or even the types of activities that make a marketplace facilitator can be different. Ensure that you know in which states your clients operate and what the specific requirements are for marketplace facilitators.

What happens to sales tax as a business grows?

Sometimes sales tax changes will occur as your clients’ businesses grow or evolve. We’ve previously discussed key nexus questions to ask your clients, but there are other things to keep in mind:

  • What is my clients’ risk tolerance with regard to sales tax?
  • Are the right resources – team members, technology – currently in place to account for sales tax reporting?
  • Do my clients need to submit voluntary disclosures?
  • Are there pre-Wayfair nexus triggers?
  • Do we need to consider income tax nexus and filing requirements?
  • What are my clients’ gross receipts tax requirements?

Whether your clients expand into new territories or start selling new products/software, you must consider all aspects of their business to ensure that all sales tax reporting requirements are met.

Utilizing technology to get sales tax right – every time

It’s also essential to understand your clients’ business needs. Knowing how nexus – both physical nexus and economic nexus – applies is just the beginning. What types of tax must be considered? Just sales and use tax or does value-added tax (VAT), occupancy tax, or an alcohol tax also apply?

Ask yourself the following questions to properly plan for where your client plans to be, not just necessarily where they currently are:

  • What are the sales channels?
  • Point-of-sale (POS), e-commerce, subscription
  • Which sales scenarios must be considered?
  • Drop Shipments, consignment, flash title, marketplace
  • Are my clients using multiple source systems?
  • ERP, payment processing, e-commerce
  • Do my clients’ customers have any intricacies?
  • Government, non-profit, resale
  • Do we need to consider purchasing/use tax?
  • Contractors, manufacturers
Remember that modern tax is evolving, and this complex landscape has global tax authorities requiring increased visibility and control into business processes, often at the transaction level.

Tax authorities around the globe have embraced digitization to speed revenue collection, reduce fraud, and close tax gaps. Companies must implement complete, connected, and continuous tax compliance software into their digital financial core. Business transformation, regulatory change, and digitization, IT modernization – or a combination of all three – could drive digital transformation for your clients when it comes to tax.

Working with the right sales tax partner can help the process be as seamless as possible. To learn more, join our upcoming demonstration of Sovos Filing on November 9.

Topics: Sales Tax


 

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