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© Avalara Monika Miles Miles Consulting Group, Inc. Sales Tax Issues for Retailers & Remote Sellers September 19, 2014 1
© Avalara
Monika Miles
Miles Consulting Group, Inc.
Sales Tax Issues for Retailers & Remote Sellers
September 19, 2014
1
Making sales tax less taxing
About the sponsor
2
• Avalara is the worldwide leader in sales and use
tax compliance automation.
• Our mission is to provide the fastest, easiest, most
accurate and affordable technology solution to
sales tax compliance.
• Through partnership with accountants, we are
revolutionizing a process that can be can be a
huge drain for businesses big and small.
• Our solutions include end-to-end compliance
automation from calculation to returns, exemption
certificate management, and more.
Making sales tax less taxing
Presenting Today - Monika Miles
Founder – Miles Consulting Group
www.milesconsultinggroup.com
Contributor – Sales Tax Support – “Sales Tax 101”
www.salestaxsupport.com
Professional affiliations:
AICPA, Texas Society of CPAs, Vistage International, NAWBO-Silicon Valley,
Accounting & Financial Women’s Alliance (Past National President)
Honored to be recognized as one of the 25 Most Powerful Women in
Accounting by CPA Practice Advisor in both 2012 and 2013
Making sales tax less taxing
Topics for today
• Current Landscape – Nexus, Quill
• Internet Sales and “Amazon Laws”
• Intro to SSTP
• Marketplace Fairness Act of 2013
• Coupons/Discounts
• Compliance Issues
• Q & A
4CONFIDENTIAL & PROPRIETARY |
Making sales tax less taxing
Sales tax is one of the most common
taxes encountered everyday by
businesses and consumers alike.
Making sales tax less taxing
The concept of sales tax is prevalent
in daily conversations because:
• States Need Revenue
• Increased On-line Transactions
• Smaller companies are able to expand their sales
footprints quickly because of increased
technology.
Making sales tax less taxing
• Sales tax and complementary use tax are
imposed by state and local jurisdictions on
retailers for the privilege of selling “tangible
personal property” in the jurisdiction.
• 45 states and DC impose a sales tax.
Sales Tax
Making sales tax less taxing
Tangible Personal Property
• The term “tangible personal property” or “TPP” refers to
property which can be seen, weighed, measured, felt or
touched, or perceived by the senses.
• In general, unless otherwise exempt, sales of TPP are
subject to sales tax.
Making sales tax less taxing
“Nexus”
• “The sufficient connection that an entity must
have in order for a state to impose a tax”
• Generally physical contact between a taxpayer
and state must occur
• Defined by U.S. Constitutional principles and
U.S. Supreme Court cases
Making sales tax less taxing
Nexus – OK! Now What?
• Once nexus is established, seller is
obligated to collect sales tax.
• Unless there is a specific exemption.
Making sales tax less taxing
Sales Tax Exemptions
• Due to the nature of the seller
• Due to the nature of the buyer
• Nature of the property/service transferred/performed
• Intended use by the purchaser
• Nature of the transaction
Making sales tax less taxing
U. S. Constitutional Basis for Sales Tax
Our current system stems from various state statutes and
regulations:
• From the U.S. Constitution:
- Due Process Clause
- Commerce Clause
• From U.S. Supreme Court Decisions
in multi-jurisdictional cases:
- Quill Corp v. North Dakota 504 U.S. 298 (1992)
Making sales tax less taxing
Due Process Clause
• No state shall: “deprive any person of life, liberty
or property, without due process of law”
• Taxes = “property”
Making sales tax less taxing
The Commerce Clause
• Authorizes Congress to regulate
commerce among the states.
• Prohibits states from enacting laws that
might unduly burden or inhibit the free
flow of trade among the states.
(Dormant Commerce Clause)
Making sales tax less taxing
Summary
• A state cannot impose a tax obligation on an out-
of-state corporation unless the Due Process
Clause “minimal connection” and the Commerce
Clause “substantial nexus requirements” are
satisfied.
• The landmark case in this regard is Quill Corp. v.
North Dakota 504 U.S. 298 (1992)
Making sales tax less taxing
Quill
In Quill, the U.S. Supreme Court concluded that in
addition to any minimum connection with a state
(Due Process Clause), a business must have
substantial physical presence nexus (under the
Commerce Clause) before the state could impose
sales/use tax collection requirements.
Making sales tax less taxing
Catalog Sales
• In Quill, the Supreme Court concluded that
Congress was better qualified to resolve the
matter of state taxation of catalog sales.
• Congress has taken no action!
Making sales tax less taxing
Catalog vs. the Internet
VS
Making sales tax less taxing
The Growth of Internet Sales
• Non-existent when the High Court decided Quill.
• No tax collection obligation on seller without a
physical presence in a state (like catalog sellers).
Making sales tax less taxing
Example:
• Susie, who resides in Georgia, received a catalog from
ShoesGalore and has selected a pair to order.
• She reviews the order form and notes in the fine print
that “customers in TX, FL, and IL, must add sales tax.”
• Susie happily sends in her order form and feels like she
has saved the sales tax.
Making sales tax less taxing
The Use Tax
• Complimentary to Sales Tax
• Paid by the Purchaser Directly
• Protects In-State Companies
Making sales tax less taxing
Uncollected Use Tax
Top 5 States
(Revenue Lost)
Est. Uncollected Sales
Tax ($$Billions) - 2012
CA $ 4.2
TX $ 1.8
NY $ 1.8
FL $ 1.5
IL $ 1.0
Making sales tax less taxing
The “Amazon Dilemma”
• Large vs. Small Companies
• “Tax Loopholes”
• Compliance Burden
• Use Tax
Making sales tax less taxing
State “Amazon Laws”
Amazon laws with “click through” or affiliate nexus
provisions are aimed at retailers who contract with
in-state marketing affiliates.
Making sales tax less taxing
State “Amazon Laws” –Definitions
“Click Through” Nexus: in-state marketing affiliates create physical
presence
“Marketing Affiliate”: related (or unrelated) companies that post web
links; banners, etc. that refer back to the online stores of large
retailers.
Making sales tax less taxing
State “Amazon Laws” –Definitions
“Affiliate Nexus”: a related company (i.e.; ownership) operating in a
state can create in-state presence for the remote seller
Making sales tax less taxing
State “Amazon Laws”Nuances
Usually a dollar threshold of sales volume must be exceeded.
(Generally low)
Can sometimes rebut the nexus presumption, but it is difficult in
reality.
Making sales tax less taxing
State “Amazon Laws”More Nuances
The affiliate that “creates nexus” for the retailer does not collect &
remit tax. The retailer is responsible for collecting and remitting the
sale tax.
The “affiliate” pays its own taxes (corporate, personal, etc.) on net
income, including commission.
Making sales tax less taxing
State “Amazon Laws”Picture this…
Shoes Galore:• Based in TX
• Want to sell in
CA
• Contracts with
me in CA for a
banner ad.
Miles Consulting:• Based in CA
• Link to SG
• Help generate $100K
of sales
• Earn 1% Commission
Making sales tax less taxing
State “Amazon Laws”
Shoes Galore:• Has exceeded
the CA $10K
threshold and
must collect &
remit sales tax
Miles Consulting:• Does not collect tax
on the shoe sales
• Will report income of
$1,000 in
commissions in CA
Making sales tax less taxing
Making sales tax less taxing
States with Amazon Laws“Early Adopters”
State Year
Enacted
$ Threshold
(Annual)
New York 2008 $10,000
North Carolina 2009 $10,000
Rhode Island 2009 $ 5,000
Colorado* 2010
Illinois 2010 $10,000
* CO – Notification & Reporting - Challenged
Making sales tax less taxing
States with Amazon Laws2011
State Year
Enacted
$ Threshold
(Annual)
Arkansas 2011 $10,000
Connecticut 2011 $ 2,000
Illinois 2011 $10,000
Vermont 2011 $10,000
Making sales tax less taxing
States with Amazon Laws2012
State Year
Enacted
$ Threshold
(Annual)
California* 2012 $10,000
Georgia 2012 $50,000
Pennsylvania** 2012 none
* CA – Originally enacted in 2011, effective 2012
** PA – No enacted statute, but PA issued Sales Tax Bulletin
Making sales tax less taxing
States with Amazon Laws2013
State Year
Enacted
$ Threshold
(Annual)
Kansas 2013 $10,000
Maine 2013 $10,000
Minnesota 2013 $10,000
Missouri 2013 $10,000
Making sales tax less taxing
States with Amazon Laws2014
State Year
Enacted
$ Threshold
(Annual)
New Jersey
(7/1/14)
2014 $10,000
Making sales tax less taxing
Why It’s Important?
“Sales tax is a pass through tax. The thing that concerns most
companies is the burden and cost of collection and remittance of
the taxes”
Making sales tax less taxing
Stretch Break?
Making sales tax less taxing
Streamlined Sales Tax Project
• SSTP, “Born” in 2000 out of the desire to make
the widely disparate state and local sales and
use tax compliance requirements more uniform
and predictable.
• Conforming states have enacted laws which
bring their sales tax systems into conformity
Making sales tax less taxing
The Stated Goal of the SSTP:
• Design and implement a voluntary sales and use
tax system nationwide, including:- Uniform tax definitions
- Simplified audit and administrative procedures
- Simplified tax filings
Making sales tax less taxing
Making sales tax less taxing
SSTP - Aspects
1. Uniform definitions within tax law
2. Rate simplification
3. State Level Administration
4. Registration
5. Uniform Audit Procedure
6. Technology models for Remittance
Making sales tax less taxing
SSTP Concerns
1. Although Enacted in 2005,
SSTP Compliance Still Voluntary
2. Two Distinct Sales/Use Systems Running Parallel
3. Impacts on Middle Market Businesses
4. Limited Taxpayer Education
5. SSTP Does Not Address Other Taxes
Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
• History
• Requirements
• Simplification?
• Politics
Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
History:
• Since 2010, several bills have been introduced
• This one has been passed by the US Senate (May 2013)
• Stalled in US House of Reps.
Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
Requirements:
• Simplification
• Software
• Small Seller Exception
• Effective Date?
Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
Simplification & Software
• Single Administration Entity
• Uniform Rates
• Certification procedures for CSPs
• Liability relief provisions
Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
Small Seller Exception
• Annual U.S. remote gross receipts of $1 Million or less are exempt from
collecting sales tax
• BUT…there are some definitional pitfalls
Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
• Effective Date?
Making sales tax less taxing
Federal ActivityMarketplace Fairness Act of 2013
• Is it “Fair”?
• Is it Simple?
• Can it pass?
• Why should you care?
Making sales tax less taxing
Federal ActivitySupreme Court Denies Cert.
• Dec, 2013 - Amazon & Overstock.com appealed the ruling of NY
State Court of Appeals re: Click Thru
• US Supreme Court Refused to Hear
• Back to Quill – Congress should fix this.
Making sales tax less taxing
Federal ActivityMarketplace Fairness in 2014?
• Chairman Goodlatte’s 7 concerns
• March hearings
• Alternatives to the current MFA
Making sales tax less taxing
Some Retailer Specific Issues
“Deal of the Day”
Promotions
Sales Tax Holidays
Making sales tax less taxing
“Deal of the Day”
• Consider Groupon or Living Social
• Example:
– Dining merchant offers a “deal” for $100 meal
– Groupon charges purchaser (subscriber) $50
– Groupon keeps $25 as its profit (fee)
– Merchant receives $25
– Prior to expiration, subscriber goes to merchant
restaurant and uses coupon to purchase $100 meal
Making sales tax less taxing
“Deal of the Day”
• Should merchant charge sales tax on:
a.) $100 – the amount of merchandise purchased
b.) $50 – the amount the subscriber paid for the
“deal”
c.) $25 – the amount the merchant receives from
Groupon
Making sales tax less taxing
“Deal of the Day”
Answer?
It depends!
Making sales tax less taxing
“Deal of the Day”
• General consensus that no sales tax is due upon
the sale of the coupon or “deal”; so Groupon
doesn’t charge tax
• Some other issues:
– Vouchers for a mixed service (taxable & non)?
– Merchant allows customer to apply part of voucher
toward sales tax?
– Multiple uses on same voucher?
Making sales tax less taxing
“Sales Tax Holidays”
• Often related to “back to school”, and limited to
certain items
• Generally approved annually by state tax
legislatures
• Can be difficult for on-line retailers to keep track
of – must apply these rules to internet
transactions.
Making sales tax less taxing
“Sales Tax Holidays”
• May be limited to state portion of sales tax (and
not include county or city)
• Examples of participating states (2014):
– AL, AR, CT, FL, GA, IA, LA, MD, MS, OK, SC, TX
– Check state websites for exact dates
Making sales tax less taxing
Sales Tax Compliance
Making sales tax less taxing
Collecting & Remitting = Compliance
Compliance 101
• Nexus?
• Rate?
• Exemptions?
• Registration
• Forms - Electronic vs. Paper
• Due Dates (vary)
Making sales tax less taxing
Collecting & Remitting = Compliance
Compliance 201
• Exempt Items
• Gi-Go?
• Front End Due Diligence
• Determine the Right Software
Making sales tax less taxing
How Can A Good Consultant Help?
• Perform Nexus Reviews
• Perform Taxability Studies
• Determine Appropriate Exemptions
• Recommend Compliance Model/Software
Making sales tax less taxing
Miles Consulting is a resource
for you:
• Monthly newsletter
• Weekly topical blog
• Complimentary consultation
Some Final Thoughts…
Making sales tax less taxing
In Summary :
It’s a crazy, Interesting Time
• States are aggressively pursuing revenue
• Congress is getting involved
• Don’t try this at home! Hire a professional
Making sales tax less taxing
About Avalara
We’re a team of developers, accountants, support
specialists, marketers, salespeople, researchers, and
technologists who know we’re onto something big.
We know that we are part of a team that is
revolutionizing what is a huge drain for businesses big
and small. Managing the compliance of transactional
taxes, from sales and use tax to 1099s and more.
Making sales tax less taxing
The Solution: End-to-End Compliance
Making sales tax less taxing
Questions
Making sales tax less taxing
Thank You!
Monika Miles(408) 266-2259
www.milesconsultinggroup.com
