Remote sellers have been forced to negotiate a very evolved tax landscape since the Supreme Court’s decision on June 21, 2018 in the South Dakota v. Wayfair, Inc., decision. Prior to the decision, remote sellers could argue they had no obligation to collect sales taxes on behalf of states they were not physically located within. This made life fairly easy for online sellers. They avoided the complications of collecting and accounting for sales taxes from, in most cases, all 50 states. In addition, they could keep their prices lower.
Lower prices and less administrative overhead sounds great to any remote seller, so Wayfair came as a disappointment to most.
The decision also leaves remote sellers to deal with a hodgepodge of state specific requirements, leading to even more administrative tangle.
To make matters worse, local sales tax administrators may add additional requirements. Adding more complication, facilitators may be required to collect the sales tax, while the online seller must account for gross sales and the taxes collected by a facilitator.
With this burdensome regulatory framework, it’s no wonder many remote sellers feel they should be able to go back to the way it was before. However, it’s not business savvy to resist regulations and incur penalties that make things worse. Every remote seller is in the same boat, so the key is creating an efficient system for managing the sales tax collection and accounting. That’s where CPAs come in.
CPAs Take the Agony and Worry out of Accounting for Sales Tax
If a remote seller covers all 50 states, accounting can get pretty complicated. Some states require collection, some do not. This necessitates an accounting system that applies sales tax according to state requirements automatically. The money then must be put in escrow and paid to the proper authority by the deadline.
This is important but painstaking work. CPAs create the accounting system and apply the methods that ease this responsibility for their clients, allowing for no sweat compliance.
CPAs Know the Requirements for Each State
CPAs know the remote seller sales tax laws for each state. For example, South Dakota requires sales tax collection for all remote sellers who do more than $100,000 of business in the state or who complete more than 200 transactions. This means a remote seller may be required to collect sales tax in some states and not in others.
CPAs create the accounting framework to track each state’s sales and assess if the collection of sales taxes are necessary.
In addition, CPAs can project annual sales for various states to determine if collection is required. In addition, as the multitude of state requirements changes, CPAs update their accounting systems to collect (or not collect) in a particular state according to sales and other data.
CPAs Tackle Compliance with Election and Notice Compliance
Some states require remote sellers with in-state business above a certain threshold to either send notice to customers (usually on an invoice) that use tax may be due or register with the state and collect the sales tax. It might seem easier to elect to send the notices, but the responsibility does not end with a notation on an invoice. Remote sellers must also provide an annual statement to each customer and report use tax notice data to the state tax authority.
Which makes more sense?
CPAs can calculate which makes more sense from a business standpoint. They also create accounting systems that track data on use tax notices or account for sales tax collections.
Facilitator Sales Tax Accounting
Some states have enacted marketplace facilitator rules that require companies like Amazon or Etsy to collect sales tax on behalf of third parties who sell on their platforms. They generally define marketplace facilitators as companies that provide e-commerce infrastructure, customer service, marketing and payment processing. As a result, in some situations, a remote sellers may have to collect taxes while in other a facilitator makes the collection. Where the facilitator makes the collection, CPAs account for gross sales and the amount collected for sales tax by facilitators, so taxes are accurately filed.
The Wayfair decision has opened remote sellers up to multiple complications that differ with each state. CPAs do the hard work of determining a compliance system, accounting for transactions and managing sales tax disbursements. These new regulations place a heavy burden on remote sellers, but CPAs can alleviate that burden and keep their businesses operating smoothly and efficiently.
Tax Avenger Canton MI is here to help online sellers comply with new tax rules and regulations and guide them through the administrative process of registering their online business in other states as well as report and pay the applicable sales taxes for each state.
If you are starting a business or your business needs accounting and tax services, Tax Avenger can help. Our CPA / accounting firm is dedicated and committed to providing exceptional service to our clients. Our services include business accounting and payroll services, individual and business tax preparation, tax problem resolutions and more! With over 18 years’ experience, our firm prides itself on the extensive international and local experience in accounting and taxation. Call us today to learn more with a Free Consultation!