In 2020, ecommerce sellers will continue to encounter changing sales tax collection requirements resulting from the United States Supreme Court ruling in South Dakota v. Wayfair, Inc. To facilitate compliance with new obligations, businesses should ensure the accuracy and efficiency of their point-of-sale (POS) and Enterprise Resource Planning (ERP) systems.
A new sales tax reality
On June 21, 2018, the Supreme Court of the United States created a new sales tax reality with its Wayfair decision. In the pre-Wayfair world, ecommerce businesses only had to collect sales tax in states where they had a physical presence. The Wayfair ruling enables states to impose a sales tax collection obligation on remote sellers with substantial economic activity in the state, or economic nexus. Thus, for many ecommerce retailers, the halcyon days have ended.
There’s a statewide sales tax in 45 states, 43 of which (plus Washington, D.C.) have adopted economic nexus since Wayfair. Florida and Missouri — the remaining two states with a general sales tax — will likely follow their lead and adopt economic nexus in 2020. And in Alaska, where there’s no statewide sales tax, numerous local jurisdictions are planning to enforce economic nexus early next year.
Safe harbor for small sellers?
Of course, some retailers qualify for states’ economic nexus small-seller exceptions, which all states except Kansas provide.
This is both a blessing and a curse. Each state has a unique small-seller exception, also called the economic nexus threshold. In California and Texas, for example, the threshold is $500,000 in annual sales: Remote retailers doing less than $500,000 in sales in either of those states generally aren’t required to register to collect sales or use tax.
However, the threshold in Alabama is $250,000, and in South Dakota, it’s $100,000 in sales or 200 separate transactions in the state in the current or previous calendar year. The $100,000 sales or 200 transactions applies to the current and previous calendar year in Wisconsin. And in Washington, the threshold is $100,000 sales, period.
Making matters more complex, the thresholds are based on different sales. In some states, they include retail sales of taxable tangible personal property only. In others, they include taxable services, exempt services, and/or taxable or exempt electronically delivered property. There’s no one “small-seller exception fits all.”
Consequently, businesses need to monitor their sales into all states. Some states require businesses to register as soon as the economic nexus threshold is crossed — as in before the next sale. Other states give more leeway, granting retailers a 30- or even 60-day grace period.
Leveraging ERP to automate tax compliance
Unfortunately, many businesses still manage sales tax manually, either outside of their systems or through legacy processes in their ERP systems. Managing sales tax manually entails uploading rate tables and entering sales tax schedules for cities, counties, and states where sales occurred. To ensure accuracy, jurisdiction boundaries, rates, and rules need to be verified each reporting period. This requires an enormous amount of work.
Sales tax compliance is challenging for businesses required to collect in one or two states. For businesses that have a sales tax collection obligation in multiple states, it can be overwhelming. There are more than 12,000 different taxing jurisdictions in the United States, each with its own rate and rules.
Integrating an automated sales tax solution into a top-notch ERP system streamlines sales tax collection and remittance and the filing of returns. It also affords greater visibility and control over disparate business processes, including accounting, customer management, inventory management, and shipping, so retailers can keep a watchful eye on approaching economic nexus thresholds.
Learn more about tax compliance and the ERP system and how Brightpearl and Avalara can help you simplify your retail ERP and tax compliance.
