TaxConnex Sales Tax Blog

Sales Tax Compliance and the Amazon FBA Seller

Posted by Brian Greer on Tue, May 23, 2017 @ 10:00 AM

I recently met with a company that has been growing their business primarily through Amazon’s FBA program.  As like many nascent businesses, sales tax compliance was not a significant concern as they were launching and taking off.  They collected sales tax in their home state and the state where they shipped their inventory to Amazon.  Unbeknownst to them (or perhaps a calculated business decision), they had created sales tax nexus in multiple states and had not been collecting the sales tax due.

 

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Sales tax nexus is a physical connection to a jurisdiction significant enough to allow that jurisdiction to subject a business to their sales tax rules in this situation.  Sales tax nexus can be created in a variety of ways including owning inventory in a state.  With the Amazon FBA program, when a seller ships their inventory to a specific Amazon location, Amazon then has the ability to move the inventory to their various warehouses to minimize the shipping time and costs.  This physical inventory that the seller owns can create sales tax nexus wherever it sits in an Amazon warehouse.  (You can learn more about sales tax nexus and Amazon FBA sellers by downloaded this Amazon Executive Briefing.)

Getting back to the business that was realizing this unfortunate situation, they have some difficult choices to make:

  1. Approach the state through a Voluntary Disclosure Agreement and pay the back sales tax that should have been collected including interest;
  2. Register with the proper date as to when the business first established sales tax nexus, prepare the requisite returns for the prior periods and remit any sales tax due likely resulting in a notice of penalty and interest;
  3. Comply prospectively and recognize the risk associated with the prior periods and that sales tax is still due in these prior periods; or
  4. Do nothing and continue to increase their sales tax risk.

None of the options are great.

These difficult decisions could have been avoided by implementing a sales tax compliance strategy from the beginning.  Sales tax is meant to be a pass-through tax and should not create or represent risk for a business.  Of course there is a cost to comply which is negligible when compared to the cost of paying back taxes out-of-pocket, and paying interest and penalties.  Especially for the Amazon FBA seller, Amazon has a great platform to collect the sales tax.  The seller only needs to register and file the returns.  TaxConnex can be a great resource for any business with a multistate sales tax collection and remittance obligation and especially an Amazon FBA seller.

Topics: sales tax compliance, voluntary disclosure, Amazon

3 Components of Sales Tax Compliance You Haven't Considered

Posted by Robert Dumas on Thu, May 04, 2017 @ 10:30 AM

I get the opportunity to talk to many businesses and CPA firms about our sales tax outsourcing services at TaxConnex.  When most of the people we talk to refer to sales tax compliance, they are thinking about tax return preparation only.   They never consider the other components of compliance. 

 

This blog is going to highlight three of these ancillary components of sales tax compliance:

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1. Filing, Mailing & Remittance    

Once a sales tax return is prepared, it must get filed and paid.  Filing can include mailing or electronic filing.   If you mail a return, it must be signed, copied or imaged for future reference, stuffed in an enveloped, metered and delivered to the post office for certification of mailing.  If you electronically file a return, it must be entered manually or uploaded into a unique jurisdiction web-site.  Regardless of the filing method, a payment is generally required and can be a check, an ACH debit or an ACH credit.  All of these remittance, mailing and filing activities require human action, processes, controls and related costs.

 

2. Jurisdiction Correspondence    

Once a business is registered with a state and local jurisdiction, it can expect multiple pieces of recurring mail from each jurisdiction.  This correspondence includes notifications of law and tax rate changes, blank tax forms, account changes and notices regarding previous filed tax returns.  Though 90% or more of this correspondence is not relevant, there is a small percentage of this mail that requires action. 

Many times, the action required is time critical so any delay in responding creates risk with the jurisdiction.  Unfortunately, a person with some level of knowledge (as opposed to a technology), must review each article of mail as quickly as possible to separate the irrelevant from the time critical and to get the mail into the proper hands.  This too requires human action, processes, controls and related costs. 

 

3. Audit Workpapers   

Once a tax return is filed, there must be some form of documentation to support the reported tax liabilities in case the tax return is audited in the future.  Ideally, this documentation provides an easy trail from the core business transactions – for example, customer invoices or vendor invoices - to the lines on the tax returns.   The documentation should also include proof of exemptions, if applicable, and support for bad debt write-offs and other adjustments.   The cost of accumulating this information can be extensive if it is gathered after the original tax return preparers are gone and the data is stored in archives.

 

Just last week I ran into a situation where a company was using another firm to prepare paper based returns.  The company then had to login to the e-file site to file and pay and/or cut checks and send the return and check to the jurisdiction.  It’s not an efficient process to have multiple parties involved in the preparation, filing, and payment of the sales tax returns. 

Be sure to factor in all of the relevant processes, costs, and risks when evaluating whether to outsource and to whom.

 

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Topics: sales tax compliance, sales tax, sales tax outsourcing

Who is NOMAD…or What is it?

Posted by Noelle Ard on Thu, Apr 27, 2017 @ 03:03 PM

I’m often situations where people will ask me to explain what I do.  Once I get the initial “tax” word out of my mouth, and explain that my busy season isn’t coming up…it’s every month, I’ll get some random questions related to state sales tax – who creates it, when is the next sales tax holiday, how did it start, and have I heard of NOMAD?

Have I heard of it…yeah, for 17 years I’ve heard all about NOMAD.  Who is NOMAD?  It’s not so much a Who but a What and I thought I’d go ahead and break it down for you!  So the word NOMAD (as it relates to sales tax) is actually an acronym for the five states in the United States that do not have a state sales tax.


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New Hampshire – While New Hampshire offers residents multiple tax breaks (no sales tax and a partial income tax), they make up for it in high property taxes.  Residents in the surrounding states of Connecticut, Maine, and Massachusetts will often venture to the neighboring state to take advantage of the break in sales tax due to its close proximity.

 

Oregon – Oregon is unique in the fact that while Oregon has no state sales tax, they have a higher income tax rate than most.                               

 

Montana – Montana sits uniquely like Oregon in the fact that while they do not have state sales tax, they do have a higher income tax rate.  Additionally, Montana does have many local-option resort fees that accompany the state in collecting additional fees / tax for purchases and services that are made within those specific resort jurisdictions.

 

Alaska – Alaska does not have a statewide sales tax, however, they have local option sales tax that is still required to be filed routinely.  Alaska (as a state and government) is funded largely on royalties and oil tax revenue from Exxon, Conoco, and BP.

 

Delaware – Standing small in size, the State of Delaware stands largely side by side with many small and large corporations as the place where many businesses are incorporated.  Delaware has a flat 8.7% corporate tax rate and a higher personal income tax rate to offset the lack of sales tax collections.

 

While these states do not have sales tax, it should be noted that they do have other state level indirect tax types (ie: Telecom, E911, Bag Fees, etc.).  So now you know who NOMAD is or at least what NOMAD is.

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Topics: sales tax

Is Your Sales Tax Compliace On Track?  3 Factors You Need To Know

Posted by Brian Greer on Thu, Apr 20, 2017 @ 10:30 AM

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The need for quality sales tax compliance support continues to grow – especially in the small to mid-market business segment.  This is due to a combination of factors including:

  •   States pushing the envelope relative to what creates sales tax nexus
  •   States being able to cross reference certain registrations
  •  A general shortage of resources to help manage the compliance process

Over the previous 18 months, we’ve seen an increase in states pushing an economic nexus standard for sales tax purposes. 

Rather than maintaining the status quo of a physical presence standard as originally ruled in the National Bellas Hess Supreme Court ruling and upheld with Quill, more and more states are establishing economic nexus standards.  I authored an Executive Briefing on this topic several months ago, but this is a moving target.

Most recently, Massachusetts introduced an economic nexus standard specifically targeting internet sellers.  Some of these economic nexus standards have been legislated, others have been regulated, and in the case of Massachusetts an administrative policy was enacted.  As we continue to see these standards challenged, retailers will be in an uncomfortable situation until these cases are decided.  Should the retailer move forward with sales tax compliance based on these economic nexus standards or wait?

As states become more sophisticated in their ability to cross reference registrations, businesses are at a heightened risk of being identified for sales tax purposes. 

For example, states now have a greater ability to cross reference a payroll registration and identify if a business also has a sales tax registration.  If you register for payroll purposes in a state you should expect a letter or nexus questionnaire inquiring about your sales tax related activities if you are not already registered there for sales tax purposes.  This trend will continue as states link different departments as well – for example the Secretary of State and the Department of Revenue.

When it comes to finding good talent to help manage sales tax internally, the requirement continues to be challenging. 

I’ve been working in this industry almost 20 years, and from day one sales tax compliance has been a high turnover position, where junior level and clerical staff are being tasked with managing the process.  As states become more aggressive, businesses should recognize that an unrecorded sales tax liability could easily be a 10% to 15% hit to their bottom line. The need for a quality sales tax resource is paramount.  Recruiting, hiring, training and holding on to good talent is essential within our industry.  If you’re struggling to find resources to help in this area, TaxConnex offers an outsourced sales tax department staffed with quality, professional, senior level individuals to help you manage this increasingly complex process.

Stay tuned over the coming months and years as the sales tax industry is gearing up for a significant change.

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Topics: sales tax, sales tax complaince

EYE ON Nebraska Sales Taxes

Posted by Jeff Meigs on Thu, Apr 13, 2017 @ 10:30 AM

eye on nebraska.pngThe Nebraska sales and use tax is imposed on taxable retail sale of tangible personal property and certain services.  The state sales and use tax rate is 5.5%.  Local jurisdictions are authorized to impose a sales or use tax on the same base as the state – local rates average 1.4%.

Nebraska does have some unique rules for contractors. 

In most states, contractors are considered the end users/consumers of tangible personal property they purchase for use or consumption in the performance of improvements to real property.  In Nebraska, contractors may elect to be taxed as either consumers or retailers in handling tangible personal property to be incorporated into realty.

Nebraska offers three options to the contractor for the taxation of building materials as follows:

  • Option 1. Contractors are retailers of building materials that become annexed and they may purchase those materials for resale. The contractor must collect sales tax from all of their customers, including contractors, on the total amount charged for building materials they annex to real estate or use to repair fixtures or property annexed to real estate.  Separately stated labor charges are not subject to Nebraska sales or use tax.

  • Option 2. Contractors must pay sales tax on all building materials and other taxable items when purchased. The contractor must remit use tax directly to the state on all building materials and other taxable items on which no sales tax has been paid.  The contractor under option 2 does not charge sales or use tax to the customer for either the materials or labor. 

  • Option 3. Contractors are consumers of building materials that become annexed but are entitled to maintain a tax exempt inventory. The contractor must remit use tax directly to the Department on all building materials when the building materials are removed from inventory.  The contractor under option 3 does not charge sales or use tax to the customer for either the materials or labor. 

The taxation of tools, supplies, fabrication and over–the–counter sales is not changed by the option selected for taxing building materials.

A contractor or repair person who has not completed and filed an election for Options 1, 2 or 3 before or within three months after beginning to operate, whichever is later, is treated as a retailer under Option 1 until an election is made. An election is not irrevocable, but may be changed upon approval by the Tax Commissioner.

Outside of these unique rules for contractors, Nebraska is fairly straight forward from a sales and use tax perspective. 

 

Sales and use taxes for contractors white paper

 

Stay tuned for more of Jeff's EYE ON series as he blogs aboout sales and use tax State by State.

Topics: sales tax, Nebraska

You Can't Solve Your Sales Tax Problems with Technology Only

Posted by Robert Dumas on Thu, Apr 06, 2017 @ 02:30 PM

I had a sales call this week with a very experienced CFO for a group of start-up technology companies.   Over the course of the last couple of years, this CFO became aware of sales tax responsibilities for some of his companies and had begun building processes to identify prior period exposure and to manage the prospective sales tax compliance process. 

He had already engaged a firm to do a nexus review of his companies, so he was starting at the right step in the process.  Though he still has to determine the prior period exposure, he also recognizes that he needs to begin thinking about the process necessary for charging his customers sales tax and paying the taxes. In his research for this process, he found sales tax technology companies that will provide a tax calculation engine that includes taxability decisions and tax rates.   

After giving me this history of his problem and anticipated solutions, he asks what is the difference between what your firm provides and what the technology companies provide?  This was a great question and really clarified for me how the market place views sales tax. 

Basically, he was attempting to solve his sales tax problems with technology only.  This certainly makes sense from his perspective, but it is not accurate.   I had to explain the many elements of sales tax compliance that require professional services as a necessary supplement to the good technology solutions. 

The professional services include:

  • Implementation of the technology,

  • Maintenance of the business assumptions and rules applied by the technology,

  • Updates to the technology because of changes in business activities and

  • Management of the output from the technology – specifically tax data. 

Because the CFO had no experience with sales tax compliance, he did not understand he needed a ‘head count’ – or portion thereof – to oversee the prospective sales tax compliance process.

I value the technology.  It is a critical component of any sales tax compliance process.  As you can expect, I also value the professional services that must be part of the process as well.  Please don’t let anyone sell you a ‘technology only’ process unless you are fully aware of the potential holes and risk to the business.   By the way…I was successful getting the CFO to understand…no deal yet though!

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Topics: sales tax, sales tax technology

Tennessee TAPS Into A New System

Posted by Noelle Ard on Thu, Mar 30, 2017 @ 02:00 PM

Businesswoman sitting at her desk navigating the internet on a laptop computer using the trackpad, over the shoulder view of the blank screen.jpegWith all the talk about simplifying Arizona (or not simplifying as it seems from a return preparer perspective), Tennessee has slipped in a totally new e-File system that has gone live and boasts the ability to file sales and use tax, privilege tax, tobacco tax, liquor-by-the-drink tax, and television & telecommunications sales tax online.

 

From the Tennessee Department of Revenue website:

Tennessee Taxpayer Access Point (TNTAP) is the convenient and secure way to interact with the Tennessee Department of Revenue.  TNTAP is Tennessee's free, one-stop site for filing your taxes, managing your account, and viewing correspondence. https://tntap.tn.gov/eservices/_/

 

Taxpayers will need to enroll in the new TNTAP system regardless of whether you had previously filed electronically through the TN e-File website.  By navigating to the following link, https://tntap.tn.gov/eservices/_/,  taxpayers can find helpful hints, tutorials, frequently asked questions and enrollment instructions on how to get set up for TNTAP and begin filing electronically going forward.

 

For additional information and tutorials, please visit:  https://revenue.support.tn.gov/hc/en-us/categories/115000174143-TNTAP-Information.  Additional guidance and support can be found at:  https://www.tn.gov/revenue/article/forms-sales-and-use-tax.

 

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Topics: sales tax, efile systems, Tennessee

Ask a Sales Tax Pro Q&A

Posted by Brian Greer on Thu, Mar 23, 2017 @ 10:30 AM

A colleague of mine and I were recently discussing that there are some common sales tax questions we receive just about every day.  We’ve outlined some of them below:

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Does an internet e-tailer need to collect sales tax? 

Yes, provided the e-tailer has sales tax nexus in the destination state where the product is being shipped.

What creates sales tax nexus for an e-tailer? 

Besides the traditional office and employees, many e-tailers have inventory in warehouses in various states.  Owning inventory is a sales tax nexus creating activity.  Also, some e-tailers have affiliate programs where a business will refer a potential buyer to an e-tailer via a link.  The e-tailer then pays a commission to the business if the buyer makes a purchase.  This is common with bloggers that review a product and then provide a link to the e-tailer’s site.  Multiple state have passed “Amazon Laws” directed at this type of activity which can be a nexus creating activity in some states.

 

Do I need to register with the Secretary of State in addition to the Department of Revenue?

  The requirement to register with the Secretary of State (SOS) should be determined by a company’s legal staff, outside counsel, or a firm specializing in Secretary of State compliance.  TaxConnex frequently manages the sales tax registration process with the Departments of Revenue (DOR).  Historically, when the sales tax application was paper based, very seldom was a SOS registration required to successfully complete the sales tax registration.  (There could have still been the need to register with the SOS – it just wasn’t a requirement to receive a sales tax ID via the DOR.)  More recently, with the proliferation of e-file sites, most states require a SOS registration before they will process a sales tax registration.

 

If I provide telecommunications services, where should I collect the applicable taxes? 

The telecommunications industry is one of the most highly taxed industries.  The question is generally coming from someone who is new to the industry and is offering a VoIP service.  There are a couple of items to highlight to address this question: 

(1) First, nexus should be determined.  Interestingly, within the telecommunications industry, nexus for transactions tax purposes (sales tax, communications services tax, etc.) is applied based on where the service provider has customers.  This is different than traditional sales tax nexus.  The overall concept is that the telecommunications service provider is taking advantage of infrastructure within the state – switches, routers, towers, etc.  Notwithstanding the fact that the provider doesn’t own the infrastructure it is still critical in helping the provider establish and serve a market.  As a result, telecommunications service providers will have nexus wherever they have customers. 

(2) The second part of the question is focused on where tax should be applied (technically referred to as the point of situs).  The easy answer related to the collection of taxes on telecommunications services is that tax should be charged based on the “benefit of service” which is where the user is located – not necessarily where the bill-to is.  The concept is easy but the execution can be challenging as a provider could have the same customer with users in many different states – and thus taxes due in many different states.  Sometimes, a provider will not know where every user is located and the bill-to is used as a default.

 

Stay tuned for additional Q+A in the future.  And check out Ask a Sales Tax Pro on our website for more.

Topics: sales tax

EYE ON Montana Sales Taxes

Posted by Jeff Meigs on Tue, Mar 14, 2017 @ 10:30 AM

eye on montana.pngGenerally, the state of Montana does not impose sales and use tax on purchases of tangible personal property. 

However, effective 2003 Montana legislated a transaction tax on lodging/accommodations, vehicle rentals and telecommunications services.

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The rate of tax imposed on these services is as follows:

  • Lodging/accommodations – 3%
  • Vehicle rentals – 4%
  • Telecommunications (Excise Tax) – 3.75%

Some local jurisdictions impose resort taxes on sales of tangible personal property and services (including restaurant sales and lodgings).  

Since publishing this blog series, we have seen three states that don’t impose a traditional sales or use tax (Alaska, Delaware and now Montana).  Since the EYE ON blogs are delivered in alphabetical order, there remain two additional states that we will review later that don’t have a traditional sales or use tax. 

Stay tuned for more of Jeff's EYE ON series as he blogs aboout sales and use tax State by State.

Topics: sales tax

Have You Paid Your Sales Tax Premium?

Posted by Robert Dumas on Thu, Mar 09, 2017 @ 10:30 AM

Over the years, I have come to respect the uniqueness of our business and how we help companies comply with the myriad sales tax laws.   Like most government mandated activities, businesses get absolutely no “value add” by completing forms, submitting information and remitting taxes and fees to government agencies.  I have never heard of a business growing revenue or creating efficiency by complying with government red tape.  

Because of this, TaxConnex is in the business of helping companies comply while minimizing the risk of non-compliance.   

Sometimes I feel like our service is like insurance.  That is…no one values the premium payment until the insurance pays a claim.   Similarly, no one appreciates the monthly sales tax compliance costs until there is a notice or assessment from a jurisdiction. 

We don’t make the rules, but we do our best to help businesses comply with them with the least amount of risk and cost. 

I can’t promise you more revenue, but I can promise you a more secure business that does not have the financial risk of an uncertain government liability.

 Are you Covered? written on the road.jpeg


A few things to remember:

The more States in which you do business, the more government rules and regulations that apply. Make sure you know which rules and regulations apply to your business.

 

  • If you plan to sell your business, you should expect to demonstrate a few years of compliance with the rules. Anyone interested in buying you will want to avoid uncertain government liabilities.

  • Sales tax compliance should not be an after-thought in your business. It’s an important business process and when managed properly will minimize risk.  However, if it is managed improperly or not managed at all, the risk will eventually catch up with you.

 

Like insurance, expect to pay your premiums in order to get peace of mind that sales tax is managed properly.

 

5 Steps to Sales Tax Compliance

Topics: sales tax compliance