Sales Tax Obligations, Economic Nexus for DtC Shippers

Delaney McDonald
April 14, 2020

Sales tax always has been, and always will be, an integral part of compliance for wineries, especially for those shipping direct-to-consumer (DtC). In recent years the standards for determining who is obligated to collect sales tax and at what rates has changed due to evolving legislation like the Supreme Court case South Dakota v. Wayfair.  

When a winery wants to ship wine DtC to a particular state, it must obtain a shipping license or permit for that state. This becomes more complicated if the state requires a winery to “voluntarily” accept a sales tax obligation in order to receive the DtC shipping license. Since DtC shipping circumvents retail stores—where sales tax would normally be collected, the state can still ensure their revenue with this requirement.

Multiple layers of tax compliance

Collecting sales tax can be complicated. Each state has the power to determine its own laws and regulations in terms of sales and excise tax rates, exemptions, and remittance. The 21st Amendment gives states even more power to tax and regulate alcohol at their discretion. Depending on the state, wine may be taxed at a different rate than all other items such as food and general merchandise, or not subject to sales tax at all. 

Wineries are generally required to collect local tax in addition to the base state rate in every state where they are registered for a sales tax license or permit. Once a seller is registered for sales tax with a state, that seller is required to continue submitting returns indefinitely, even when no sales tax is due, until the state expressly releases the retailer from responsibility.

In order to be compliant, wineries must keep up with state and local rates across all relevant jurisdictions, which can be broken down to county, city or even street level. In 2019, Sovos processed over 900 sales tax rate changes in the United States, where there are already more than 12,000 economic nexus laws on the books. 

Assessing the proper sales and excise tax rates can be complicated when selling into multiple states. For example, in California the sales tax rate is 7.25 percent plus local rates (which in California as of May 2019 is calculated based on the destination address when goods are delivered to the end consumer) and the excise tax rate is $0.20 per gallon for still wine and $0.30 per gallon for sparkling wine. In New York the sales tax is 4 percent plus local rates and the excise tax is $0.30 per gallon. This is the contrast in rates when comparing just two states; every additional destination state can create an exponentially more complicated web of rates and rules to comply with, making it extremely difficult to manage manually.

What is economic nexus and does it affect DtC wine shippers? 

Economic nexus requires businesses selling in a particular state to collect and pay tax on the income generated in that state, regardless of physical presence. Each state’s nexus obligations are now based on sales revenue and transaction volume thresholds.

Standards for economic nexus vary by effective date, transaction count threshold, revenue threshold and measurement period depending on the state. This adds even more complexity to the already complicated rules and regulations surrounding sales tax for DtC wine shippers.

This can cause difficulty determining in which states you are responsible for collecting sales tax. For example, in California as of April 25, 2019 remote sellers regardless of transaction volume, that make more than $500,000 in revenue in the preceding or current calendar year meet the economic nexus thresholds and are responsible for collecting sales tax. But, in New York the rules are much more complicated. As a remote seller in New York, if you have more than 100 transactions and $500,000 in revenue in the four preceding sales tax quarters you are responsible for sales tax collection, effective as of June 24, 2019 with a retroactive date of June 21, 2018. In addition to applying nexus laws, many states are also discussing the possibility of retroactive enforcement. 

How to manage the varying sales tax obligations and reporting thresholds

Keeping track which states require sales tax obligation as a condition of obtaining a DtC shipping license, the varying sales and excise tax rates, and the new economic nexus standards can be very difficult to manage. It’s important to understand the revenue and transaction thresholds in each state as well as the effective dates and measurement periods to ensure you are collecting sales tax and properly reporting in every state where you meet the obligation standards.

Determining when your winery is responsible for collecting sales tax in a particular state, and then determining the correct sales and excise tax rates in the jurisdiction of the order’s final destination can be extremely complicated without an automated software solution. If economic nexus or sales and excise tax rates are not properly assessed and reported, it can lead to penalties, fines, or even loss of licensure. Making sure you are collecting the correct rates based off of destination with real-time sales tax determination and compliance checks will keep your winery protected.

Want to learn more about how to manage sales tax determination and reporting? Check out our latest white paper on real-time sales tax determination and compliance checks.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Delaney McDonald

Share This Post
Share on facebook
Share on twitter
Share on linkedin
Share on email

North America ShipCompliant
June 18, 2021
How to Streamline Your Wine Shipping With UPS and FedEx

Wineries that use FedEx or UPS to print shipping labels for beverage alcohol packages can integrate with ShipCompliant to streamline the fulfillment process. This means: No more typing addresses to print labels One click can pull all shipment information from ShipCompliant into FedEx or UPS –  your labels are ready to print Tracking numbers sync […]

EMEA Tax Compliance VAT & Fiscal Reporting
June 17, 2021
Poland VAT Reporting: Draft Amendments to JPK_V7M/V7K Published

In Poland, the Ministry of Finance proposed several changes to the country’s mandatory JPK_V7M/V7K reports. These will take effect on 1 July 2021. The amendments offer administrative relief to taxpayers in some areas but create potential new hurdles elsewhere. Poland JPK_V7M and V7K Reports The JPK_V7M/V7K reports – Poland’s attempt to merge the summary reporting […]

North America ShipCompliant
June 17, 2021
Can Retailers Do Direct-to-Consumer (DtC) Wine Shipping?

The demand among retailers and consumers for interstate direct-to-consumer (DtC) wine shipping is growing, further bolstered in the wake of the COVID-19 pandemic. Retailer DtC shipping is allowed in just 15 states and the District of Columbia, but retailers still saw significant increases in online orders and DtC shipping in the past year. But what […]

EMEA VAT & Fiscal Reporting
June 16, 2021
VAT Trends: A Shift Toward Destination Taxability for Certain Cross-Border Transactions

As detailed within our annual report VAT Trends: Toward Continuous Transaction Controls, there’s an increasing shift toward destination taxability which applies to certain cross-border trades. In the old world of paper-based trade and commerce, the enforcement of tax borders, between or within countries, was mostly a matter of physical customs controls. To ease trade and […]

EMEA Latin America Mexico VAT & Fiscal Reporting
June 15, 2021
Understanding Mexico’s Carta Porte Supplement

On 1 May 2021, the Mexican tax administration (SAT) released one of the most important updates to the electronic invoicing system of the country since 2017. The update was about the new Bill of Lading Supplement (locally known as Suplemento de Carta Porte) that should be added as an annex to the electronic invoice (CFDI) […]