Skip to Content

We are a Veteran Owned Business, providing 20% discounts for Veterans, First Responders, Elementary and High School teachers. Please contact us to set up a phone or Zoom meeting. Taking care of you and your family, It's What We Do!

Klenk Law

A Sales-Tax Primer for Pandemic-Affected Businesses

Posted on Tue Apr 27, 2021, on Uncategorized

Business Law Lawyer

COVID-19 has triggered many brick-and-mortar entities to either strengthen or create their online presence. This, in turn, has forced them to address sales tax complexities they didn’t have to contend with when all sales were local.

Understanding Sale Tax Thresholds

The internet sales tax requirement is the direct result of the Supreme Court’s ruling in South Dakota v. Wayfair Inc. (138 S. Ct. 2080 (2018)). Wayfair overturned prior rulings and stipulated that even businesses without a physical presence in a state had to collect sales tax on transactions in any state in which it has (1) more than 200 transactions or (2) $100,000 in in-state sales.

The thresholds set in Wayfair were based on South Dakota law. In practice, however, these thresholds aren’t clear-cut. Every taxing jurisdiction, including states, counties, and municipalities, can require sales tax to be collected and remitted. These thresholds for requiring sales tax to be paid vary with each jurisdiction. This means that the amount of sales revenue, number of sales and which goods and services are taxable differ in each jurisdiction. So, one state may impose a 5% sales tax on a particular good or service and the local municipality may impose an additional 1%, while a neighboring state has no sales tax on that particular good or service, but the local municipality imposes a 2% tax. In the former example, the business would be responsible for collecting and remitting a 6% sales tax, and in the latter, they would be responsible only for 2%.

Conducting a Jurisdictional Analysis

These tax requirements can get complicated. The only way for businesses to be compliant and avoid owing large amounts in back taxes or penalties is to do a jurisdiction-by-jurisdiction analysis.

Among other things, online sellers need to answer the following questions:

  • Can you identify every state and jurisdiction in which you operate? This category includes not only where you ship to but also things like where your inventory is stored.
  • Can you easily separate your sales by product or service and jurisdiction? Keep in mind that each jurisdiction can have different thresholds for collecting sales tax.
  • Can you monitor for changes in the sales tax laws and regulations in every jurisdiction in which you do business? This process includes monitoring for the effective dates of any changes.
  • Are you eligible for a sales tax exemption in any of the jurisdictions in which you operate?
  • Do you need to register for other state taxes?

Companies need to decide how to manage sales tax compliance and how to monitor for changes in rates and goods and services that are newly taxed. For most companies, this means choosing the right software for their needs, and perhaps working with a consulting company that specializes in sales tax.

Becoming Compliant

Once all of this is accomplished, companies need to determine how and when to become compliant. This can be achieved in several ways, including registering through the state’s voluntary compliance program. This decision is complicated because the wrong choice can result in higher penalties.

The concept of a sales tax nexus is especially challenging for businesses new to this arena as well as those beefing up their online operations. Nevertheless, predictions are that the trend in online sales will only get stronger, so it makes sense to understand all the rules. For help ensuring that your online business is complying with sales tax requirements, contact a business law lawyer today.

What Our clients are saying

Klenk Law Logo
Stars

I have worked with Peter Klenk & his associates for some time now and I have found them to be ultra-qualified, knowledgeable and diligent about their work. I highly recommend them.

Klenk Law Logo
Stars

Peter explained a complex subject very clearly, helped us to decide the best approach to managing our estate and then made it very easy for us to execute the required documents. He will be a valuable resource for years to come and clearly has a great understanding of estate law that will lead to innovative solutions for us. I would unhesitatingly recommend him for estate planning.

Klenk Law Logo
Stars

Peter has done a great job with the estate planning for my father. He is very thorough and patient as we, the family need to make decisions.

Klenk Law Logo
Stars

Mr. Klenk, quickly understood the circumstances presented and provided clear and concise advice. This advice provided me with the information I required to progress the case to my advantage.

Klenk Law Logo
Stars

Peter provided outstanding advice and preparation of a will and trusts.

Let us put our expertise to work for you.

Free consultation within 24 hours.