The Sales Tax Knowledge Gap: Are You Ready for Internet Sales Tax? Shane Ratigan, JD LLM Taxation October 2103

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1 The Sales Tax Knowledge Gap: Are You Ready for Internet Sales Tax? Shane Ratigan, JD LLM Taxation October 2103 Copyright Avalara, 2013

2 Shane Ratigan, J.D. LL.M Tax Law and Compliance Expert at Avalara, Inc. Subject matter expert on sales tax compliance for internal and external stakeholders. Graduate of University of Washington School of Law (LLM Taxation), Syracuse University College of Law (JD), and State University of New York (B.S. Accounting and B.S. Business Administration) Active Member of the Oregon State Bar and the Washington State Bar

3 What We Will Discuss Today Current Sales Tax Environment Establishing Nexus for Sales Tax Purposes Proposed Marketplace Fairness Act of 2013 Challenges of Sales Tax Compliance Questions

4 Current Tax Climate The Status of Our States Sales tax = State revenue States are still recovering from the recession States are always trying to increase revenue What Does This Mean to Businesses? You are a revenue collector for the state. And the state would like its money now, thank you. Sales tax = Source of risk

5 Current Tax Climate General Sales & Use Taxes Represent One Third of all Tax Revenues to State Coffers States Are Hiring Auditors and Equipping them with Better Tools States are Passing Laws to Expand Sales Tax Nexus States are Passing Laws to Redefine Services and Digital Content as Taxable Bills before the US Congress to enact national nexus standards and institute universal collection obligation.

6 What is Nexus? Nexus is a legal connection your company has with a state. The connections trigger an obligation for your company to collect sales taxes. Nexus is a legal principle and a legal test, not a cut and dried proposition.

7 What is Nexus? Nexus Triggering Activities: Physical Presence: Brick and Mortar Salespeople or other agents working within a state. Nexus can come in many other forms, or combinations, of these type of connections.

8 What is Nexus? Other Nexus Triggering Activities: Attendance at Trade Shows Collection Activities Maintain Retail Displays Banking or Finance Use of Third Parties Business Registration Business Licensing Certain Advertisements Nexus can come in other forms as well. Whether your company has nexus may result from just one or a combination of these connections. The establishment of nexus is a facts and circumstances legal analysis.

9 Proposed Marketplace Fairness Act of 2013 Marketplace Fairness Act of 2013 Allow states to require out-of-state businesses to collect sales tax. Destination based collection. On May 6, 2013 the Senate passed the Marketplace Fairness Act of 2013 by a vote of 69 to 27.

10 What Would Passage of Marketplace Fairness Act Do Authorizes states to require a remote retailer to collect sales tax Significantly alters nexus analysis for many vendors Includes a $ threshold to require compliance

11 Not just for online/internet sales The Proposed MFA applies to anyone who makes remote sales, regardless of how they make remote sales and regardless of whether those sales are taxable Remote seller = Any out-of-state business entity that sells into a state in which that seller would not legally be required to pay, collect, or remit state or local sales and use taxes unless provided by this Act.

12 How does Nexus continue to be important? Current Constitutional Nexus Analysis does not vanish. Vendors with less than $1,000,000 in remote sales will still work in the nexus universe. All existing nexus twists and turns carry forward, including the lengthy list from earlier and new forms as well, like click through nexus.

13 How Passage Would Affect States States have two ways to take advantage of the proposed law s collection obligation: Join the Streamlined Sales Tax Initiative (SST) OR Implement a number of state process simplifications

14 Get the latest news

15 Sales Tax Compliance is Complicated with or without MFA. State Attempts to Expand Nexus: Click Through Nexus Expanded Affiliated Entity Nexus CO Reporting Rules

16 Sales Tax Compliance is Complicated with or without MFA. How the States Keep Sales Tax Compliance Complicated: Product Taxability Rules are not consistent. Sheer volume of separate jurisdictions. Variable and ever-changing rates. ZIP Code based calculations are only accurate some of the time.

17 Geo-location, not zip codes

18 Take-Aways Understanding the Current Sales Tax Environment Marketplace Fairness Act of 2013 Challenges of Sales Tax Compliance for Today and Tomorrow.

19 Automation IS the answer!

20 Avalara Simple and Easy-to-Work With Simple Go-Live experience 10,000+ happy customers 2 billion sales tax calculations annually Filing 500,000 tax returns per year Remit nearly $10 billion in sale and use tax collections annually Manage 5 million exemption certificates

21 Online Product Demos

22 Questions?