Earlier this year the U.S. Supreme Court issued its much-awaited decision in South Dakota v. Wayfair, overturning a prior ruling that prevented states from requiring online and other remote sellers to collect state sales tax unless the seller had a physical presence in the state.
Even as individual states continue to evolve plans for implementing this new ruling, it is expected to have wide-ranging implications for companies that sell online to consumers and businesses.
This decision has sparked many organizations to explore technologies and processes to ease the impact of this decision on their ability to sell online.
We checked in with Mark Sieczkowski, Senior Product Manager at Vertex Inc., a provider of comprehensive, integrated tax technology solutions, to discuss how organizations can best respond to these changes in the online sales tax law.
What types of businesses will this affect?
Sieczkowski: Any business that sell goods remotely could be affected, including businesses that may not have warranted sales tax collection in the past because they lacked a physical presence in the jurisdiction. While the focus has been on companies that sell to consumers online, organizations need to take a broader view of this ruling’s impact on business-to-business transactions.
What should businesses be doing now?
Sieczkowski: Companies can prepare for the increased collection and remittance responsibilities by starting to gather data on gross revenues and/or the number of transactions that occur within states where they sell remotely.
Organizations need to prioritize the states where they have the greatest presence and begin the process of registering to collect and remit sales tax. This can be done via a marketplace, or with a hosted, cloud-based solution.
Businesses also need to evaluate the impact of remote seller compliance on their financial statement. This can materially change a company’s financial reporting requirements.
Invoicing processes and controls are also a concern, as invoicing errors that occur after the decision is finalized likely will result in significant risks to customer satisfaction and cash flow.
The ruling could also have a substantial impact on staffing needs — particularly as companies ramp up for compliance — so they may have to rely on outside help.
How can automated tax solutions help?
Sieczkowski: Tax technology solution providers such as Vertex can accommodate any new calculation and reporting requirements following the Supreme Court’s decision to overturn Quill. Cloud and on-premise solutions such as those available from Vertex can be tailored to specific industries for every tax type.
The primary question that a business has to ask is, “What is the risk of an audit?” Organizations must weigh audit risk against the cost of automating the process.
If you sell a number of products that have different tax classifications in various jurisdictions, you certainly want to consider automating. The various rule changes and rates and tax holidays are difficult to manage manually.
How can automated tax solutions provide the ability to determine if either transactions or monetary jurisdictional thresholds have been met?
Sieczkowski: Organizations certainly want to track whether they have met the individual thresholds for sales tax requirements, and that is difficult to do in a manual environment. Automated solutions such as ours offer the ability to generate reports to alert the user if they are coming up on certain thresholds that require them to take action.
Do you see the landscape of resale certificates changing?
Sieczkowski: Even if a transaction doesn’t have a tax implication, it still likely counts as an online transaction in the jurisdiction and requires a resale certificate. Customers may have managed this process manually in the past, but they need to start focusing on automating certificate management to defend against an audit.
What is the importance integrating your tax automation solution with your ERP and ecommerce platforms?
Sieczkowski: It is important from a real-time tax calculation perspective, because you don’t want a lag when the tax rates change, which can result in customers being charged incorrect amounts.
There have been more than 600 changes per year in sales tax rates and rules since 2007, so there is value in working with a third party to manage and maintain this information.
In short, you want to focus on managing your business, not keeping up with changes in the tax rates and rules.
For more information about sales and use tax technology solutions, visit https://www.vertexinc.com/solutions.