How Should Companies Manage Wayfair Changes?

February 21, 2020

This segment takes a look at how, with the help of experts, to negotiate state and local tax issues such as nexus and apportionment.


Gary Bingel:

In order to manage these changes going forward, companies need to first get a firm handle on their Nexus footprint. Again, not just for sales taxes but for all taxes. The last thing you want to do is just look at sales tax in a vacuum and not consider how it's going to impact other taxes, or other areas of your business. Once you know your Nexus footprint and where you should be filing. The next item, at least for sales tax, is to get a firm handle on your revenue streams and the taxability of them. As well as any potential exemptions that may apply. You may need to expand or update your taxability decision matrices just to make sure that you're taxing things correctly across state lines. Each state taxes many items very differently than the others, so things like software as a service may be taxable in one state but not other states.

In addition to getting a handle on the taxability, intentional exemptions, you also need to know how your sales are going to be sourced. While it's very easy to source things such as sales of tangible personal property in most instances. Many items such as services and intangible items, such as software are much more difficult to source. And states again have different provisions and how they're going to treat those items. Some other things to keep in mind are, you may need to expand your exemption certificate management software, whereas previously if you were only collecting tax in unlimited number of States, you may have only had to worry about the exemption certificates for a small number of customers. However, now if you're going to be filing sales taxes across the country, you may need to start tracking a great deal more of your customers exemption certificates and make sure you're collecting them.

And those exemptions certificates, again, like many areas across state lines can vary greatly as far as what a state will accept or not accept as proper documentation. Finally, this has all been focused on the sales taxes. Don't forget about use taxes. There's a lot of software providers out there that will help you with your sales tax accrual or your sales tax decisions, but they may not be set up as well for use tax decisions. Once you've gone through and decided on where you should be filing and decided on the taxability or products, you may determine that you have exposure going back much further than you thought.

Even if your exposure only goes back based on Wayfair, that's at least a year now. There are several ways you can look at to remediate these items. One is to approach the state with a voluntary disclosure. States also occasionally run amnesty programs, or in some states you may decide that the exposure is so minimal that you may just want to register and file prospectively and you're willing to take the risk on any prior amounts due. Maybe there are minimal invests in comparison to how much you owe overall, and it's just one of those business decisions you need to take into account. In any case, gathering the information is really where you need to start to make sure you can make the proper informed decisions.

About Gary Bingel

Gary Bingel, Partner-in-Charge of the National State and Local Tax Group, with expertise focuses on state and local income taxation, and sales and use tax consulting. He has significant experience serving clients in the manufacturing, retail, pharmaceutical, biotechnology, technology and service industries.

More in This Series

How Does Wayfair Impact Companies?

You need to understand the concept of Nexus if you are selling over the internet.

What Has Changed About Nexus and Wayfair?

When you sell over the internet you need to understand the concept of nexus. Because of sales across state lines sales tax must be collected.

How Has Nexus Been Applied Previously?

Presence through intangibles, agents, affiliates and really any sort of minimal connection that people may not think of as physical presence was nevertheless found to be sufficient to establish physical presence for purposes of Nexus and the sales tax and income tax area.

What is the Future of Nexus?

Save you a lot of time, grief and money by knowing your Nexus tax exposure. You need to consider not just your sales tax footprint, but where you're filing things such as income taxes and franchise taxes as well.

Risks of Apportionment

Apportionment issues present challenges and opportunities. Proper planning can help to manage your overall tax liabilities, and knowledge of these issues can help mitigate potential exposures and combat aggressive taxing authorities on audit.

Apportionment Opportunities

In this Apportionment overview, Gary Bingel discusses challenges and opportunities and how planning can help manage overall tax liabilities, and knowledge can help mitigate potential exposures and combat aggressive taxing authorities on audit.

What is Apportionment?

Apportionment is the manner in which income is divided between various taxing jurisdictions. A number of states have moved to receipts receiving more emphasis. Our video overview sets the stage for our pitfalls, risks and opportunities discussions.

What is Nexus?

In this Nexus overview, Gary Bingel discusses how Nexus varies state by state, the contacts required to generate taxes, "physical presence" and other key focus areas including remote employees, and new sourcing rules among others.