Simplifying Sales Tax After the Supreme Court Ruling

Big changes to state sales tax has come into play for online sellers. Keep reading to find out how using Xero and app add-ons can make this change manageable (and a no-brainer!).

On June 21, 2018 the U.S. Supreme Court changed the landscape of sales tax for businesses and consumers by overturning the physical presence standard that was set in 1992. Although big companies like Amazon and Wayfair already collected sales tax on most internet sales, there was no precedent to require any other businesses operating an e-commerce website to collect and remit sales tax. Wayfair did not collect sales tax in South Dakota, which lead to the now precedent setting South Dakota v. Wayfair, Inc. opinion.

As states move to tax all out-of-state vendors on e-commerce, they will use South Dakota’s legislation as a general guideline since it prevailed in court. Existing legislation will most likely be updated to be similar to South Dakota’s Bill 106. This bill requires remote sellers with no physical presence in the state to collect and remit sales tax if it meets one of the two following criteria:

  1. The remote seller’s gross revenue of sale of tangible property, any products transferred electronically, or services delivered into South Dakota exceeds $100,000.
  2. The remote seller has 200 or more separate transactions tangible property, any products transferred electronically, or services delivered into South Dakota.

If a business meets one of these criteria, they will have to obtain a business tax license with the State of South Dakota. As the law went into effect on May 1, 2016 businesses that have not been registered may face an audit or penalties for late registration. Ultimately, the Supreme Court’s decision that a physical presence is no longer needed may give cash strapped states a easy new source of tax revenue.

How Can You Simplify Sales Tax?

The process of manual sales tax compliance prior to the Wayfair court case was already difficult. With this new responsibility, the process will become more complicated as states pass new laws or update current laws to allow them to collect more sales tax from businesses without physical presence.

If you are using Xero’s cloud accounting software, you have the ability to stay up-to-date with all the sales tax rates in the USA thanks to a partnership with Avalara. Using the sales tax lookup feature within Xero, you can calculate and add tax automatically to invoices for U.S.-based customers. Every time there is a new invoice, the tool also checks for new tax rate updates automatically (in thousands of jurisdictions). The tax in Xero uses the physical address of your customer and the states you where indicated you should be collecting sales tax to simplify the process.

In addition to the sales tax lookup service, Xero’s integration with Avalara’s TrustFile allows businesses to prepare and submit their sales tax returns in minutes. Although Avalara & Xero’s partnership automates most of the process, there is still a human component as an accounting advisor should be consulted to help determine the tax treatment of products, services, or shipping costs.

Not a Xero User?

There are various sales tax automation applications that can be used outside of Xero. Before implementing any app, whether it be for sales tax or another business process, it is important to speak with your accounting advisor so that you can better understand your needs and evaluate the app to see if it solves any of them. At the same time, while the applications all appear to do the same thing, they may work differently and should be thoroughly evaluated based on your specific situation and existing app ecosystem.

Sales Tax Automation Apps

Tax and tech: The good news is you have availability to automate your sales tax tracking and reporting through several reputable apps. Not only will these apps integrate seamlessly with Xero, but most can integrate with popular point-of-sale and merchant apps such as Shopify, Magento, WooComerce, Paypal, Square, Stripe, Amazon, Etsy, eBay, and more.

  • Avalara

    Visit Website→    @avalara→

    Avalara provides tax monitoring, compliance, and reporting to 20,000+ businesses of all sizes across the globe. Through the AvaTax, Avalara Returns, and Avalara CertCapture features, the powerful software can automate tax calculations & the tax filing process and help you navigate rapidly changing tax codes from over 12,000 jursidictions, making sure you always are integrated with the most up-to-date tax rules and rates at all times. Avalara offers tiered and scalable pricing options based on sales volume, but you have to contact them for a quote.

  • Taxify

    Visit Website→    @SovosTaxify→

    Taxify by Sovos provides effortless sales tax automation for all 50-states and keeps you up-to-date with accurate tax rates from over 14,000 federal, state, and local jurisdictions. Taxify offers print-ready tax forms, real-time cart calculations, a knowledgeble Sovos team in business for over 30 years, transparent reporting to support a clear audit trail, and a self-service web portal that helps you save time and eliminate risk with AutoFile’s ability to submit accurate and on-time filings. Pricing is based on your average monthly transactions ($47-$247 a month).

  • TaxJar

    Visit Website→    @taxjar→

    TaxJar eases the sales tax process by automating calculations, reporting, and filing for over 10,000 online sellers and merchants throughout the world. TaxJar Reports helps business owners save hours by organizing your data into many easy-to-read reports while TaxJar AutoFile can prevent you from missing a due date by automatically submitting sales tax returns. With a little bit of coding, you can custom embed TaxJar’s SmartCalcs to instantly have real-time sales tax rates and calculations at checkout. Recently TaxJar has released a Sales & Transactions Checker to help businesses with economic nexus responsibilities in wake of the SD v. Wayfair case. A basic plan ranges from $17-89 a month based on number of transactions while TaxJarPlus requires a custom quote.

 

Contact an Alloy Silverstein tax expert and cloud coach if you need assistance in simplifying your sales tax recordkeeping process.

 
Chris Cicalese

Author: Chris Cicalese, CPA

 


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