South Dakota v Wayfair: What it Means for Use Tax and Procurement Practices

Charles Maniace
July 23, 2018

This blog was last updated on August 12, 2019

There is no shortage of advice on what remote commerce sellers should do in light of the South Dakota v. Wayfair decision and the immediate tsunami of states acting to impose immediate (or relatively soon) tax collection and remittance obligations. In fact, smart sellers may have been planning ahead for this eventuality by evaluating (and monitoring) the states in which they have likely exposure. But have you considered whether your vendors will have the ability to accurately charge sales and use tax on your business purchases? Are you prepared to aggressively validate tax charges on your invoices to ensure you don’t pay any more tax than you have to but pay exactly as much tax as you need to?

How Does the South Dakota v Wayfair Ruling Effect Procurement and Use Tax?

Nothing the Supreme Court did in Wayfair changes the fact that sales and use tax liability is joint and several in most jurisdictions. This means if the seller neglect to collect and remit tax, or do so incorrectly, the obligation falls on the purchaser to self-assess and remit any tax that the seller failed to collect. For many businesses, use tax exposure can be substantial. Companies adopting best practices in tax compliance will have processes in place to ensure their A/P transactions are taxed correctly and when they are not, they take the necessary remedial steps. According to Americas’ SAP Users Group (ASUG), the “time to verify the accuracy of tax charged on vendor invoices” was the single biggest challenge when managing tax compliance on purchases.

As states move with lightning speed to enact economic/virtual nexus standards, more sellers will take at least some steps to collect tax in these states. However, the business reality is that purchasers cannot count on these sellers directing the necessary energy to get tax right. Not everybody is as diligent as those who attended the recent Sovos post-Wayfair decision Q&A webcast. Rather, what we will likely see is a number of sellers trying to get their hands around this situation and in so doing, taking any number of missteps, whether that be trying to maintain rates and rules databases themselves, stretching an existing solution beyond its capability, or selecting an automation provider that is not the right fit.

All of these scenarios will lead to mistakes, and mistakes in the world of sales tax compliance can be costly. Purchasers must be on their guard to make sure they are being charged the right amount of tax. Overpaying tax burns through cash that could otherwise be used to grow your business and underpaying tax leads to audit risk. Auditors also frequently review both sales and use tax transactions as part of the same audit, but as states begin to realize the power of technology in analyzing enormous volumes of data, audits are bound to become more frequent and comprehensive.

If you are a business currently collecting out-of-state use tax, will you have to move to collect sales tax instead? How might that change for a business?

In most states (Arizona and Colorado being exceptions), transactions originating in one state but delivered to a customer in another are subject to seller’s use tax. Further, while most states’ use tax rates and rules match those that apply to sales tax, there are, in some states, situations where localities imposing a sales tax have different (Alabama) or non-existent (New Mexico) use tax rates.

There is nothing in the Wayfair decision that expressly changes this reality and nothing appears to be happening right now indicating a movement to align sales and use tax rates in those states that have disparate treatment. In fact, just the opposite seems to be occurring. In the last few weeks, Louisiana (a notoriously complex state for sales tax compliance) has adopted a unique set of simplified tax rules that apply only to remote sellers effective July 1. Likewise, Alabama (another complex state) is planning to make their existing (voluntary) simplified seller’s use tax program mandatory effective October 1.

Take Action
Download the ASUG white paper, “Risky Business, How to Beat the Inefficiencies of Tax Compliance on Purchases,” to learn:

  • The clear and present risks associated with an increase in audit frequency and scrutiny on sales tax, and in particular, use tax, on purchases.
  • Current processes and technology your peers are using across the procure-to-pay process for tax compliance with varying results.
  • The necessary steps to reduce risks and burdens of tax compliance on purchases across your organization

Sign up for Email Updates

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

Author

Charles Maniace

Chuck is Vice President –Regulatory Analysis & Design at Sovos, a global provider of software that safeguards businesses from the burden and risk of modern tax. An attorney by trade, he leads a team of attorneys and tax professionals that provide the tax and regulatory content that keeps Sovos customers continually compliant. Over his 20-year career in tax and regulatory automation, he has provided analysis to the Wall Street Journal, NBC, Bloomberg and more. Chuck has also been named to the Accounting Today list of Top 100 Most Influential People four times.
Share this post

alcohol deliveries
North America ShipCompliant
December 20, 2024
What if No One is Home to Sign for an Alcohol Delivery?

This blog was last updated on December 20, 2024 When no one is home to sign for an alcohol delivery, it becomes more than just a minor hiccup for direct-to-consumer (DtC) alcohol shippers. It’s a domino effect that transforms a perfectly curated product into a customer’s disappointment before it’s ever opened. This becomes an even […]

taxation of motor insurance policies france
North America VAT & Fiscal Reporting
December 18, 2024
Taxation of Motor Insurance Policies: France

This blog was last updated on December 18, 2024 France is one of the most challenging countries in Europe when it comes to the premium tax treatment of motor insurance policies. This is mainly due to the variety of taxes and charges that can apply and the differing treatment of different vehicle types. This blog […]

california bottle bill compliance
North America ShipCompliant
December 13, 2024
California Bottle Bill: Compliance Updates for Wine and Spirits

This blog was last updated on December 16, 2024 California’s bottle bill got a major upgrade earlier this year, and it’s changed the rules for wineries, distilleries and beverage distributors in a big way. For the first time, wine and spirits manufacturers will need to register with CalRecycle, report sales and pay California Redemption Value […]

unclaimed property compliance for wineries
North America ShipCompliant
December 12, 2024
Unclaimed Property Compliance: What Wineries and Wine Clubs Need to Know

This blog was last updated on December 12, 2024 Although hard to believe, unclaimed property obligations impact ALL industries, including wineries and other wine clubs. While most companies typically only associate unclaimed property with outstanding checks, including accounts payable and payroll, there are other exposures for wineries and wine clubs to consider. Understanding these risks […]

retail delivery fees for alcohol shipping
North America ShipCompliant
December 5, 2024
Navigating Retail Delivery Fees: A Guide for DtC Alcohol Sellers

This blog was last updated on December 5, 2024 Direct-to-consumer (DtC) alcohol shippers are no strangers to navigating a complex regulatory landscape. However, recently, a new challenge has emerged—the rise of retail delivery fees. From excise taxes to shipping restrictions, the industry has long dealt with a maze of state-specific rules that require careful attention […]