South Dakota v. Wayfair: Impact to P2P Professionals

Transcription

1 South Dakota v. Wayfair: Impact to P2P Professionals November 13, 2018 Diane L. Yetter YETTER Tax Slide 1

2 REMOTE SELLER NEXUS LEGISLATION Slide 2

3 Nexus Physical presence is the first evaluation to be done to identify where nexus is established If there is no physical presence, then economic nexus needs to be evaluated If no nexus, then notice and reporting may apply Nexus is determined at the state level but there is pending federal legislation Slide 3

4 Click-Through Nexus Typical Attributes Minimum sales threshold into state (typical is $10,000) Commission payment to in-state resident Commission payments for successfully completed orders Applies for online and offline activities Is NOT: Click advertising Banner ads Slide 4

5 Click-Through Nexus: Enacted and Proposed Legislation Slide 5

6 Affiliate Nexus Typical Requirements Remote retailer holds a substantial interest in, or is owned by, an in-state retailer and the retailer sells the same or a substantially similar line of products under the same or a similar business name, or In-state facility/employee used to advertise, promote, or facilitate sales to an instate consumer May not require common ownership May include activities in the state on behalf of the out of state business to benefit the out of state business customers Shares management, business systems, business practices, or employees with the retailer, or engages in intercompany transactions with the retailer Slide 6

7 Affiliate Nexus: Enacted and Proposed Legislation Slide 7

8 Economic Nexus Typical Attributes Does not require physical presence Correlates with a set level of sales or gross receipts activity Most states set threshold at $100,000 or 200 transactions Threshold is most often gross sales but some states have retail sales and a few have taxable sales Slide 8

9 Economic Nexus: Enacted and Proposed Legislation Slide 9

10 Marketplace Nexus Requires online marketplace facilitator to collect tax on behalf of sellers operating through their systems Typical requirements include that the marketplace facilitator collects revenue from the customer and manages multiple activities related to the selling process Slide 10

11 Marketplace Nexus: Enacted and Proposed Legislation Slide 11

12 Notice & Reporting Requirements Typical Attributes Prohibits advertising no tax applies Retailer must notify customers of use tax obligation Retailer may be required to send purchasers an annual statement of their purchases Retailer may be required to send an annual report to state DOR Thresholds may apply Penalties may apply Slide 12

13 Reporting Requirements (cont.) 3 Different categories of legislation Retailers aren t allowed to advertise that no sales tax is due Retailers must notify purchasers of their use tax obligation, but no penalties for non-compliance Retailers must notify purchasers of their use tax obligation, send annual summaries of customer purchases to customers, and file customer information reports with the DOR and penalties apply for noncompliance Slide 13

14 Reporting Requirements: Enacted and Proposed Legislation Slide 14

15 Federal Legislation Marketplace Fairness Act of 2017 On April 27, 2017, a bipartisan group of senators introduced the Marketplace Fairness Act of 2017 (MFA). Similar legislation was introduced in both 2013 and 2015 and failed to be enacted both times. If enacted, the legislation would authorize states meeting certain requirements to require remote sellers that do not meet a "small seller exception" to collect their state and local sales and use taxes. The small seller exception is set again at $1 million of remote sales annually. The only other significant change from the 2015 version is a prohibition of making the effective date during the 4 th quarter of the calendar year. Slide 15

16 Federal Legislation (cont.) Remote Transactions Parity Act of 2017 On April 27, 2017, a bipartisan group of lawmakers introduced the Remote Transactions Parity Act (RTPA) of Similar legislation was introduced in 2015 but failed to be enacted. Like the MFA, the legislation would also create sales and use tax collection obligations for remote sellers but has some differences and additional provisions. Some key differences from the MFA include a different definition of a small seller. The RTPA has a phased in threshold starting at $10 million in year one, then $5 million, then $1 million. In year 4, there is no threshold. Slide 16

17 Federal Legislation (cont.) Remote Transactions Parity Act of 2017 (cont.) In addition to the monetary thresholds, any seller that sells on an electronic marketplace is considered a small seller. A difference from the 2015 version of the bill is an inclusion of a definition of remote seller which specifies when a company is NOT a remote seller which includes physical presences for more than 15 days in a state, leasing or owning real property and using an agent to establish or maintain the market in a state if the agent does not perform business services in the state for any other person during the taxable year. Slide 17

18 Federal Legislation (cont.) No Regulation Without Representation Act of 2017 On June 12, 2017, Rep. Jim Sensenbrenner (R-WI) and House Judiciary Chairman Bob Goodlatte (R-VA) introduced the No Regulation Without Representation Act of A previous version of this bill had been introduced in 2016 and failed to pass. Under the proposed bill, a state may tax or regulate a person s activity in interstate commerce only when such person is physically present in the state during the period in which the tax or regulation is imposed. Under the proposed bill, the physical presence requirement would apply to sales and use tax and net income and other business activities taxes, as well as the states ability to regulate interstate commerce. Slide 18

19 Federal Legislation (cont.) No Regulation Without Representation Act of 2017 (cont.) In addition, the bill prohibits the imposition or assessment of a sales, use or other similar tax or a reporting requirement unless the purchaser or seller has physical presence in the state. This would prohibit all the remote seller legislation (click through, affiliate, economic, marketplace and reporting/notification). If enacted, the legislation would apply with respect to calendar quarters beginning on or after January 1, Slide 19

20 Federal Legislation (cont.) Online Sales Simplicity and Small Business Relief Act of 2018 On September 13, 2018, Rep. Jim Sensenbrenner (R-WI) and additional U.S. House members introduced the Online Sales Simplicity and Small Business Relief Act of A state would not be allowed to impose a sales tax collection duty on remote sellers for any sale that occurred prior to June 21, A state would be allowed to impose a sales tax collection duty on remote sellers only for sales occurring after January 1, Includes a small business remote seller exception of $10 million Slide 20

21 Federal Legislation (cont.) Online Sales Simplicity and Small Business Relief Act of 2018 (cont.) Proposes that Congress should develop an interstate compact governing the imposition of tax collection duties on remote sellers A person would not have physical presence in a state if the person s physical presence in the state (as outlined in the legislation) was for less than 15 days in a taxable year (or a greater number of days if provided by state law), or if the person s physical presence in the state was solely for the purpose of conducting limited or transient business activity. Slide 21

22 IMPACT TO P2P PROFESSIONALS Slide 22

23 Reasons for Overpayments and Reverse Audits Clients have a variety of reasons that use tax overpayments occur which can be identified and recovered through a reverse audit. A common theme is around process or people limitations. This includes clients that have tax automation solutions. It is virtually impossible to automate use tax determination to a 100% level. The next most common reason is that the law requires the tax to be paid up front and then a refund claim is required to claim back the tax. The other main reason is due to law changes or incorrect interpretation of the law to the company s specific situation. With the Wayfair decision, more sellers will be collecting tax and if exemption certificates haven t been issued, this will result in overpayments Slide 23

24 Reasons for Overpayments and Reverse Audits Often there are a mixture of reasons based off the type of Accounts Payable system used, the state, or process of accrual. When a tax automation system is in place, it can be set up without the correct details in place and many tax details can be missed. Employees are often not trained well enough on implementing the system, or it takes too much time to manually review everything. Other times, a client simply doesn t interpret the law correctly. Slide 24

25 Vendor Paid vs. Self-Assessed Use Tax Overpayments are related to either vendor paid use tax or self-assessed use tax. Accrued use tax often relates to situations where the vendor never charged the tax likely because they were not registered. This will likely change moving forward as more companies are registered to collect tax. Slide 25

26 Refunds from Vendor vs. State Sales and use tax refund claims must typically be filed with the entity to whom the tax was paid. Sales tax paid to vendors generally requires the claim to be filed with the vendor and use tax paid to the state can be filed with the state. A number of states including Texas permit vendors to assign their right to file the refund claim to their customer. This is referred to as a vendor assignment. But there are states where this isn t permitted, and this can result in lower recovery of the refunds. Slide 26

27 Refunds from Vendor vs. State (cont.) Very few buyers have a formal regular process of reviewing tax paid to vendors. In many cases, the tax department does a review of transactions identified for use tax accrual but no review at all of invoices where the vendor charges tax. As more vendors charge tax, this is a concern. However, process and systems limitations make this difficult. Slide 27

28 Vendor Tax Validation While accrued use tax is often the easiest way to review and identify use tax overpayments, it is likely that more dollars can be found in vendor paid tax transactions. As more suppliers start charging tax, the amount of vendor paid tax will increase and in our opinion the opportunity for reverse audits. This is an area of opportunity for refunds. Slide 28

29 Vendor Tax Validation (cont.) To the extent that you re using a managed compliance rate or you re not doing detailed transaction reviews, it is very likely more vendors will be charging you tax. So you ll need to go in and review those items if you see vendors charging you tax. You ll need to monitor for vendors that you buy exempt items from to make sure you ve issued the right exemption certificates to them. Slide 29

30 Process Changes to Implement Buyers should have a formal regular process of reviewing tax paid to vendors. Review or implement a vendor tax validation process. If you re using a managed compliance rate, review to see if vendors are charging you tax. Monitor for vendors that you buy exempt items from to make sure you ve issued the right exemption certificates to them. As more suppliers start charging tax, the opportunity for reverse audits will increase. This is an area of opportunity for refunds. Slide 30

31 Sales and Use Tax Whitepapers Visit Nexus Whitepaper Sales Tax Administration Whitepaper Slide 31

32 Q & A Questions? Slide 32

33 Contact Information Diane L. Yetter YETTER Tax (312) , Yettertax, Salestaxinstitute /company/sales-tax-institute /salestaxinstitute Slide 33