Technology, the rise of the online entrepreneur, direct sales markets, and COVID work-from-home gigs have all created a huge backlog of complicated sales and local tax (SALT) issues. We’re seeing crazy cases like in Massachusetts where there was a push for electronic “cookies” to be used to constitute physical presence for retailers in the state.
Sales tax rules are allowed to be set individually by each state, and not all of them are straightforward. A case is being heard in Louisiana where an online retailer stated that the state’s requirement for out-of-state retailers to file sales reports with every Louisiana parish is an ”undue burden” and discriminatory against out-of-state commerce.
Many states however have tricky catches like Louisiana, leaving our uninformed clients ill-prepared to deal with the growing demands of state nexus issues.
Keeping up with the demands is nearly impossible for retailers selling in multiple states. In Illinois for example, out-of-state retailers are required to collect, report and remit sales taxes based on the destination of the products.
That means that out-of-state businesses have to collect, report and remit the sales tax using the rates that vary by each jurisdiction within the state of Illinois. This is just one example of the heavy burden that can unknowingly be placed on a business. Imagine small business owners having to address this burden across multiple states.
It’s impossible to track of every state, every local jurisdiction, and every type of random tax such as franchise, transit, and personal property taxes that may also apply depending on the business and its structure. To tackle sales tax issues, one tech tool that can help make it easier for you and your clients is Lumatax.
It’s impossible to track of every state, every local jurisdiction, and every type of random tax such as franchise, transit, and personal property taxes that may also apply depending on the business and its structure.
Lumatax layers on top of your point-of-sale system to effectively read your sales levels in a variety of jurisdictions and ongoing alerts of when you may be reaching a threshold in a new jurisdiction. This is a critical piece to outsource as the alternative requires massive amounts of research on an ongoing basis as each new jurisdiction pops up.
And when you are selling online, new destinations for products can pop up constantly.
This is all exclusive of the sales tax issues related to the sale of intangible goods and products. These issues are not getting easier and not going away. Despite states starting to take a serious look at their tax structures, small business owners especially don’t have any breaks right now.
Many of them also don’t understand this liability as separate and distinct from income tax, or how convoluted the laws are. Advisors should pay special attention to clients they work with who are in the e-commerce space or any businesses that shifted to more remote work offerings during the pandemic.
Especially in areas throughout the country where employees may live in one state but cross over to another to go to the office, employers could have inadvertently created nexus in new states by now allowing those same employees to work from home. I recommend including sales tax-related questions on tax return organizers sent to clients.
While it may not provide a proactive approach throughout the year, it can be an opportunity to upsell to clients and help them address huge potential issues before they get to be bigger problems than the business can handle.
