Nexus and Sales Tax, Yuck!

We blame Amazon! One of the initial advantages of buying products online was that you could skirt paying local sales tax. The bigger online retailers became, the more revenue every state was missing out on due to this loophole. In fairness, it was most online merchants, not just Amazon, but other online merchants like Wayfair. Maybe you remember that catchy jingle, “Wayfair you got just what I need”. Well, Wayfair didn’t have just what South Dakota needed, sale tax payments! So, the State of South Dakota sued Wayfair and the case made it all the way to the US Supreme court in April of 2018.

South Dakota vs. Wayfair

Wayfair thought they were going to prevail because, in 1992, the Supreme Court ruled in favor of Quill Corp over the State of North Dakota over the same issue. This case was just going to be an affirmation of that prior ruling. In that prior case, it was determined that the state could not require a merchant to collect sales tax on shipped items if the merchant had no physical presence in the state. 

But 1992 was a long time ago and online shopping had now become a large and fast-growing form of commerce. On June 21st of 2018, the court came to a decision and South Dakota won, overturning the Quill vs North Dakota decision of 1992. This gave the states permission to collect sales tax from online purchases even if the business does not have a physical presence in that state.

So, why is EMP writing about this in our little newsletter? Well, that court decision opened Pandora’s Box for all businesses. Talk to the accounting team at your company and see if they are aware of Wayfair vs South Dakota and the subsequent importance of Nexus. They will know all about it and that ruling has impacted our business here at EMP as well, we shipped to 46 states in 2021. That Supreme Court case impacted all transactions to other states, not just online sales.

So, how do we possibly manage all of this? EMP chose a software product called Avalara. It is not the only software product out there to help you manage your sales tax compliance, but Avalara is the biggest.  And they had a seamless integration into our ERP, which is Microsoft Dynamics BC.

We were already registered in Indiana our home state as well as OH and IL where we have employees.  But now add to that MI, WI, KY, TX, TN, PA, NC, MN and then FL, CO, and GA. This has forced us to work with our customers’ accounting departments to be sure that we have tax-exempt certificates on file for all these states, or we need to start charging sales tax. 

For some customers, this is a good thing. They would prefer that we charged them sales tax so that they do not have to worry about remitting use tax for themselves. Most of our customers are either using our products for their own production or they are reselling the products, both making them tax-exempt.

So, if you have noticed us sending you emails about sales tax lately, we apologize. We are just trying to keep our house in order so that if an audit ever happens, we have you and EMP covered!

Always trying to do the right thing for our customers! Contact us if you have any questions.

If you want to learn more about South Dakota vs Wayfair, CLICK HERE.

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