Sales Tax - What Business Owners Selling Online Need to Know
Rebecca R Schmidt, CPA, EA
July 30, 2019
In 2018 the US Supreme Court in South Dakota v. Wayfair overturned the established physical presence rules for businesses to determine if they needed to register, collect and pay sales tax in an individual state. If your business has a website and engages in internet based out-of-state sales, you could be exposed to new laws passed by over 35 states requiring you to register, collect, and pay sales tax in that state.
Most states have passed laws stating that if you sell more than $100,000 of products or services OR more than 200 transactions of any dollar amount, you are subject to their rules. Failure to follow their rules could essentially bankrupt your company in a few years with penalties. The AICPA has an example of a company with a $9,000 annual sales tax liability unpaid for seven years. With penalties after 7 years the company would owe the state $2.6 million in back taxes and penalties.
We do not monitor sales volumes or the number of transactions by state and do not register or file sales tax returns for you when we prepare your income tax returns. It is imperative if you have a website selling products or services, or you offer sales across state lines, that you familiarize your self with these rules and protect your company. We can make suggestions for software solutions if you wish, but again, you need to action on this issue because it is not part of your income tax preparation.
With over 9,000 separate state and local taxing jurisdictions in the United States our concern for your company’s exposure to these rules forced us to alert you to the problem via this blog. Please act sooner rather than later, we cannot over-emphasize the importance of compliance with these rules.