Multi-state sales tax filing

Why

Wayfair Changed Everything for Multi-State Sales Tax Filing. The 2018 South Dakota v.

Wayfair Supreme Court decision fundamentally altered sales tax obligations for remote sellers. Now, every state with a sales tax has economic nexus requirements, meaning businesses must collect and remit sales tax even without a physical presence in that state.

How to Determine Economic Nexus. Economic nexus is triggered when a business reaches a certain amount of sales or a number of transactions in another state.

Common thresholds are $100,000 in sales or 200 transactions per year, but these specifics vary significantly by state. For instance, California's economic nexus threshold is $500,000 in sales per year.

Some states may count exempt sales of goods and services towards this threshold. Businesses must carefully track their activities in each state on a rolling 12-month and calendar-year basis to determine where nexus has been triggered.

Understanding Marketplace Facilitator Laws. Most states have implemented marketplace facilitator rules, which shift the responsibility for sales tax collection to the marketplace (e.g., Amazon, Etsy, Shopify).

However, sellers still need to track independent obligations for certain fees or services and maintain proper resale or exemption documentation. It's crucial to identify all marketplaces used and confirm which states treat the marketplace as the collector.

Registration Process and Timing Differences. The mechanics and timing for sales tax registration vary by state.

Some states require immediate registration once an economic nexus threshold is met, while others allow registration at the start of the next year or on a specified effective date. States will require different business data and issue unique state tax IDs.

Businesses should prepare a registration package template and monitor triggers to register promptly. Filing Frequencies, Returns, and Remittance.

Sales tax filing frequency depends on state rules and sales volumes within that state, with options for monthly, quarterly, or annual filing. States also differ on allowed return types and e-filing capabilities.

Maintaining a compliance calendar with due dates for each state is essential to avoid penalties and interest, which states assess for late registration, late returns, or unpaid tax. Sourcing Rules, Taxability, and Exemptions.

States use either origin or destination sourcing rules to determine which local rates apply. For most retail sales, destination sourcing (tax rate based on the buyer's delivery address) is common, but exceptions exist.

Taxable products and services also vary by state, covering items like software, digital goods, food, and clothing. Managing resale certificates and exemption documentation is critical, as states have different accepted forms and retention rules.

Businesses should centralize exemption certificate management and ensure customers provide state-specific documentation. Use Tax and Purchaser Obligations.

If sales tax is not collected by the seller, customers (or the business itself) may owe use tax. Businesses need to understand their use tax reporting obligations, especially for taxable items purchased for business use.

Considering Voluntary Disclosure Agreements (VDAs) can be beneficial if past uncollected liability is suspected, as many states offer VDAs to limit lookback periods and penalties. Practical Compliance Checklist and Automation Tools.

Effective multi-state sales tax compliance involves implementing nexus monitoring and utilizing automated tax engines (e.g., AvaTax, TaxJar, TaxCloud) that handle rates, sourcing rules, and marketplace facilitator logic.

Centralize registration records and resale certificates, maintain a compliance calendar, and conduct periodic internal audits. A three-layer compliance approach is recommended: (1) detect nexus, (2) register and configure collection, and (3) file and remit, with documented processes and retention policies.

Additionally, track sales tax holidays and local jurisdiction rules in tax software.

Introduction: Why Wayfair Changed Everything for Multi-State Sales Tax Filing. The 2018 South Dakota v.

Wayfair Supreme Court decision fundamentally altered sales tax obligations for remote sellers. Now, every state with a sales tax has economic nexus requirements, meaning businesses must collect and remit sales tax even without a physical presence in that state.

How to Determine Economic Nexus. Economic nexus is triggered when a business reaches a certain amount of sales or a number of transactions in another state.

Common thresholds are $100,000 in sales or 200 transactions per year, but these specifics vary significantly by state. For instance, California's economic nexus threshold is $500,000 in sales per year.

Some states may count exempt sales of goods and services towards this threshold. Businesses must carefully track their activities in each state on a rolling 12-month and calendar-year basis to determine where nexus has been triggered.

Understanding Marketplace Facilitator Laws. Most states have implemented marketplace facilitator rules, which shift the responsibility for sales tax collection to the marketplace (e.g., Amazon, Etsy, Shopify).

However, sellers still need to track independent obligations for certain fees or services and maintain proper resale or exemption documentation. It's crucial to identify all marketplaces used and confirm which states treat the marketplace as the collector.

Registration Process and Timing Differences. The mechanics and timing for sales tax registration vary by state.

Some states require immediate registration once an economic nexus threshold is met, while others allow registration at the start of the next year or on a specified effective date. States will require different business data and issue unique state tax IDs.

Businesses should prepare a registration package template and monitor triggers to register promptly. Filing Frequencies, Returns, and Remittance.

Sales tax filing frequency depends on state rules and sales volumes within that state, with options for monthly, quarterly, or annual filing. States also differ on allowed return types and e-filing capabilities.

Maintaining a compliance calendar with due dates for each state is essential to avoid penalties and interest, which states assess for late registration, late returns, or unpaid tax. Sourcing Rules, Taxability, and Exemptions.

States use either origin or destination sourcing rules to determine which local rates apply. For most retail sales, destination sourcing (tax rate based on the buyer's delivery address) is common, but exceptions exist.

Taxable products and services also vary by state, covering items like software, digital goods, food, and clothing. Managing resale certificates and exemption documentation is critical, as states have different accepted forms and retention rules.

Businesses should centralize exemption certificate management and ensure customers provide state-specific documentation. Use Tax and Purchaser Obligations.

If sales tax is not collected by the seller, customers (or the business itself) may owe use tax. Businesses need to understand their use tax reporting obligations, especially for taxable items purchased for business use.

Considering Voluntary Disclosure Agreements (VDAs) can be beneficial if past uncollected liability is suspected, as many states offer VDAs to limit lookback periods and penalties. Practical Compliance Checklist and Automation Tools.

Effective multi-state sales tax compliance involves implementing nexus monitoring and utilizing automated tax engines (e.g., AvaTax, TaxJar, TaxCloud) that handle rates, sourcing rules, and marketplace facilitator logic.

Centralize registration records and resale certificates, maintain a compliance calendar, and conduct periodic internal audits. A three-layer compliance approach is recommended: (1) detect nexus, (2) register and configure collection, and (3) file and remit, with documented processes and retention policies.

Additionally, track sales tax holidays and local jurisdiction rules in tax software.