CPA - Abacoa - Accounting
By: Glenn Schanel, CPA
on September 19, 2018

On June 21, 2018, the U.S. Supreme Court changed the sales tax landscape with its decision in South Dakota v. Wayfair. Prior to this decision, states were not allowed to collect sales tax from online, mail order or catalog sales by businesses located outside of their states unless a business had a significant presence within that state. Significant presence was generally defined as having warehouses, stores, manufacturing facilities or employees in a state. This was based on Supreme Court decisions made well before the internet age.

The Wayfair decision changed all that. In recognition of the unfair advantage that internet sellers have over brick-and-mortar stores, the Supreme Court upheld a South Dakota sales tax law that allowed the state to collect sales tax from out-of-state sellers if their sales to state residents exceed certain thresholds. Sellers who have sales of over $100,000 or who have over 200 sales to South Dakota residents now have to collect and remit sales tax to South Dakota.

What is the Current Law in Florida on Internet Sales?

Here in Florida, six attempts between 2008 and 2016 to pass legislation to tax internet sales all failed. The current law regarding sales tax dates back to 1987, and only requires sellers who have a substantial physical presence within Florida to collect and remit sales tax on sales to Florida residents. It’s not clear at this time whether the Florida legislature will act in the next session to pass new laws regarding internet sales.

What Impact Will This Have on Me?

Most consumers and businesses may not notice an immediate impact from the decision since states are still trying to figure out how to respond. If you buy from Amazon, you’ve probably already noticed that sales tax has been charged for some time now. Larger online retailers may follow suit.

What if My Small Business has Online Sales Outside Florida?

If your business out-of-state sales, we can help you make a plan to minimize risk and keep compliance costs down. At the very least, we recommend tracking and monitoring sales by state. With over 10,000 separate taxing jurisdictions in the US, things can get very complex very rapidly. Here’s a list put together by KPMG on current state responses to the Wayfair decision.

The South Dakota law includes activity thresholds, and as long as sellers don’t exceed those levels ($100,000 in sales or 200 separate sales to South Dakota residents), they don’t have to worry about sales tax. We anticipate that most states that do pass internet sales tax legislation will include similar thresholds so that small sellers won’t face huge costs for compliance.

What About Sales of Services to out of State Customers?

Only four states impose sales tax on services by default: Hawaii, South Dakota, New Mexico, and West Virginia. However, many states impose sales tax on certain categories of services. For example, Connecticut charges sales tax on various categories of professional services, such as lobbying, consulting, data processing and public relations. In Iowa, investment counseling and executive search services are taxable. If your service company has customers outside of Florida, we recommend you contact our office so we can advise you.

Do you have questions about how the Wayfair decision will impact your business? Contact us to schedule an appointment to determine the best course of action and to keep you updated on this important change.

Schanel & Associates is a CPA firm specializing in accounting, tax, business valuation and litigation support serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118.
Glenn Schanel is the founding Principal of Schanel and Associates. Glenn Schanel is a CPA with over three decades of experience helping people and organizations manage, make sense of and benefit from their finances. He oversees areas that include auditing, accounting, tax, business valuation, forensic accounting, litigation support and other consulting services to both business and individual clients.

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