Struggling to Keep Up with Sales and Use Tax Compliance?
Automation Makes the Task Surprisingly Affordable.
By Rob Drover, Vice President of Business Solutions, Marcum Technology
Economic nexus has become relevant for many retailers with internet and remote-based sales. The 2020 COVID pandemic and virtual explosion in online retailing has only increased the number of businesses that have or will soon achieve economic nexus and, therefore, become subject to local and state sales tax collection and remittance obligations.
On June 21, 2018, the United States Supreme Court, in a 5-4 decision, ruled in favor of South Dakota and its economic nexus provisions for sales tax collection. In South Dakota v. Wayfair, Inc., the Court overturned its prior decision in Quill (Quill Corp. v. North Dakota), which required that a retailer have a physical presence in a state in order to be required to collect tax for sales into that state. The South Dakota statute requires remote retailers with annual in-state sales exceeding $100,000 or 200 separate transactions (“economic nexus”) to collect and remit sales tax. This landmark decision has been the driving force behind the rush of other states to implement similar tax requirements.
For many businesses, sales and use tax compliance was previously a relatively simple task. A retailer simply needed to maintain tax rate tables for one local jurisdiction and state – its own. Only one or two monthly or quarterly filings were required. With the changes brought about by Wayfair, the complexity and challenge of filing in numerous states and localities can be an enormous compliance challenge and is fraught with risk, including under-collection, failure to file, and the accompanying financial liability that it brings.
Businesses have several options to meet this challenge:
Many leading e-commerce vendors offer some form of tax calculation engine, powered by a tax research team that monitors tax rates by locality, product type and other related factors. This allows a retailer to quickly calculate the tax to be collected at point of sale. These calculation engines work in real-time. A small fee per transaction is charged to cover the cost of the service.
While a business can choose to forgo this service and attempt to keep up “on its own,” it runs the risk of under-collecting or over-collecting due to the varied locality-level taxes in place around the country. Of course, once a sale tax transaction takes place, it would be very difficult to return to a customer to correct a tax collection mistake. It is permitted but likely not feasible, or at the very least, will cause customer service issues.
After monthly sales are completed and you have collected sales tax from your customers, you need to report and remit this tax to your local and state taxing authorities. A state will generally determine your economic nexus based on annual sales dollar volume, transaction volume, or both. Once you have achieved nexus, you are expected to register, collect, and remit sales tax until you no longer have nexus. Generally, a state will require you to file for the rest of the calendar year even if you no longer meet the threshold. For taxpayers who end up falling just below a threshold in a given year, it is generally easier to continue to collect and file rather than close an account that may need to be reopened the following period.
It is important that you consult with your tax advisor to review any physical or economic nexus you may have reached in a state and its localities. Your advisor can help you navigate the registration process quickly and easily.
Now the Fun Part: Filing
Now that you are registered, you may have a monthly, quarterly or annual filing requirement. Rules vary by state. Some states offer a single website for both state-level and local filing, while others require multiple returns to meet both taxation levels. Sales must be reported at a tax jurisdiction level, which may be as low as a zip code and city/town.
Let BOTs Do the Heavy Lifting
At this point you may be confused, frustrated, or just simply unable to keep up with all of the many websites, sales tax returns, and requirements you face on a monthly basis. Moreover, much of this work is repetitive data entry, which is not necessarily the best and highest use of your time or your staff’s.
Marcum Technology’s Intelligent Automation takes this burden off your shoulders and puts it squarely into the “hands” of an automated system engineered to do the heavy lifting for you. Similar to the “E-File” process used for federal taxes, RPA scripts are built by state and locality, enabling the system to take your raw sales tax data, log into each applicable website, and file the return for you. This automated process significantly reduces the manual time required of your team and the often high expense.
The benefits are significant in terms of reduced labor, more accurate and timely returns, and most importantly, more time for your accounting team and/or your tax advisor to focus on the much more important business of running and growing your business.
We have made the process as simple as possible. We provide a customer-facing portal for you to upload your monthly sales detail, and we take it from there. If you update your state tax account with your bank’s ACH information, we can file the return on your behalf, remit the payment, and provide you a copy of the return with a confirmation number — all completed quickly, efficiently and cost-effectively.