Remote Seller Sales Tax Update
Michael J. Fleming is the founder and president of Sales Tax and More, a full-service consulting and solutions firm with a passion for state tax. He is one of the country's leading authorities on sales tax issues such as consulting and research, registrations, returns, nexus, drop-shipping, eCommerce, and service providers.
Michael is a renowned writer and speaker, and he regularly presents on webinars. He is also the host of the Sales Tax and More Podcast, where he shares his wisdom and learnings with his audience in order to help them navigate the tricky world of taxes.
In this episode…
We talk about remote seller sales tax updates as of May 2021. We discuss Florida, Kansas, the expected updates in Missouri, and the special voluntary disclosure program in Pennsylvania.
Here’s a glimpse of what you’ll learn:
Flordas’s economic thresholds
Local taxation
Kansas’s economic thresholds
Missouri’s expected economic thresholds
Prospective registrations
Tough states when it comes to audits
Pennsylvania’s special voluntary compliance program
Connect with Michael
Episode Transcript - Audio Version
[0:10] Intro: Welcome to Sales Tax and More your go-to resource for all things, state tax-related. Now, here is your host, Michael Fleming.
[0:27] Mike: Hello everyone! Mike Fleming here, founder of Sales Tax and More, and today’s co-host of the Sales Tax and More podcast where we talk about everyone’s favorite topic, which is, of course, sales tax. Today is Monday, May 24th, 2021, and my co-host, Ellie Moffat and I are going to be discussing the latest in remote seller updates. Before we get started I’d like to introduce you to Ellie.
[0:53] Ellie: Hey Everyone, hey Mike! Great to be here. I want to also do a quick introduction for Sales Tax and More before I start grilling you, Mike. Sales tax and More is a full-service consulting and solutions firm. We have a really great team here of experienced tax professionals who are very dedicated to fulfilling your state tax and related needs. So, we do a lot of sales tax returns, sales tax registrations, consulting, research and like our name states more. So if you have questions about our services, please reach out and ask, we would love to work with you. So, Mike, we have so many updates, where do we even start?
[1:36] Mike: Lots and lots of updates, Ellie. There's literally a ton of them. So why don't we get started with Florida? Florida was one of the last three states that didn't have an economic nexus, nor did they have any marketplace collection statutes in place. And as of now, Florida has implemented a hundred thousand dollar threshold. There is no transaction threshold. It becomes effective on July 1st of 2021. And it's based on the previous calendar year. So if you had taxable sales, Last year, over a hundred thousand dollars, Florida is looking for you to become registered. Florida's also requiring marketplace facilitators marketplaces to go ahead and collect sales tax for third-party sellers. So if you're only selling through a marketplace, You can actually deregister, once that marketplace starts collecting, it appears Amazon's going to be collecting as of July 1st. So a lot of sellers, if they're only selling through these marketplaces, can deregister as of June 30th. If you're selling through multiple channels, though, and these channels are non-market places. For example, a Shopify, big commerce, woo commerce, your own website, then you're most likely going to need to stay registered. And for those sellers who, not selling through marketplaces, who have never had a responsibility to register in Florida before, if they're over the one hundred thousand dollars last year, then they need to go ahead and get registered by July 1st. Start collecting and remitting the tax.
[3:30] Ellie: Mike, this is great. I love that we're just jumping right in. So from what I understand, the local taxes have to be collected also.
[3:40] Mike: Oh yeah. Great point, Ellie. Thanks for reminding me. The counties in Florida are allowed to impose. What's called a discretionary sales surtax. This needs to be collected by old remote sellers so not only do you have to collect the state rates, but you have to collect the local rates also. And by the way, in most states, when you're a remote seller, you're going to need to be collecting the local rates. A lot of people when they're trying to figure out what their past exposure is, they're only using the state rates, but in general, you need to be figuring not only the state rates. But also the local rates. So a great point there Ellie, thanks for bringing that up.
[4:25] Ellie: Yeah! Great points to you, Mike, and other things I want to bring up here. I believe Kansas also passed an economic nexus threshold. That's effective July 1st, 2021.
[4:35] Mike: Correct again, you're on a roll Ellie. It too has a hundred thousand dollar threshold there are no transactions just like Florida. This one's a little different though. Where Florida was based on the previous calendar year. This one is based on the previous calendar year or the current calendar year. The first thing you want to do is look and see if you were over a hundred thousand dollars last year, and if you were not, then you gotta look and see if you're over a hundred thousand dollars now and through the end of the year. And then once you cross that a hundred thousand dollars, or if you cross that a hundred thousand dollars threshold, you'll need to be registered at that point. This one's a little bit different in a couple of other ways, too. It's not as clear on the information and a couple of reasons for that, number one, this wasn't signed by the governor. The governor actually vetoed it. She vetoed it actually three times, twice in 2019. Because of COVID-19, they didn't even attempt it in 2020, then she vetoed it again this year. But the legislature said enough's enough and they overrode her. So now we have this hundred thousand dollar threshold, which is good because the Kansas department of revenue has previously said, Hey. We can't impose thresholds, only the politicians can do that, but we know that you don't need a physical presence in Kansas. The Supreme court told us that. So they started pursuing people. They said for even one transaction, but then the Kansas attorney general stepped in and said, no, you have to at least follow the Wayfair guidelines which are a hundred thousand dollars or 200 transactions. And the governor said, no, they don't and so did the department of revenue. But now that the legislature has put this in place you don't have to worry about that anymore, but we're a little bit short of actual information on how this is going to be implemented. For now, I would go with gross sales. It may be taxable sales like in Florida, but for now, let's look at gross sales. So all sales, whether they're exempt, whether they're sales for retail, I would play it on the safe side. You have to remember Kansas is the state that said one transaction. So I would definitely play this on the state safe side. As time goes on just like all the other states more and more guidance is released. And as we get that information, we'll release it to you. As of now a hundred thousand dollars, two hundred transactions. There's also a requirement for marketplaces to collect and remit tax for third-party sellers. Just like Florida, if you're only selling on marketplaces, now's the time that you can get deregistered. If you're selling on Shopify or your own website, you're going to want to stay registered or get registered if you're over the hundred thousand dollars.
[8:00] Ellie: So really that just leaves Missouri as the only state with a sales tax that does not have an economic nexus or marketplace collection or requirements.
[8:10] Mike: Correct, yeah, but I think that's going to change shortly. Because the legislature sent something to...a bill to the governor's desk to the best of my knowledge, the governor has not signed it, but he is expected to sign it. And it also is going to be a hundred thousand dollars and no transactions. That is the more recent trend is no transactions where a lot of states, just followed South Dakota, which was a hundred thousand dollars or 200 transactions, but the more recent states are eliminating that transaction. We don't have a whole lot of information on this, and this is maybe one of the governors taking his time, signing it also because it doesn't become effective until January 1st of 2023. So that's almost 18 months out. So there's a lot of time to get a lot more information on this one. The bad news is that if you're selling only on a marketplace, you still have to worry about collecting the tax. If you have inventory in the state of Missouri because Amazon's not going to be collecting until January of 2023. So it's still quite a bit off.
[9:25] Ellie: Yeah and Mike, I want to bring up something else. This has been really great information. These are things that we're putting out there a lot on all of our channels to keep people updated. But I want to switch gears to something else that we've been talking about here. We've talked about the Pennsylvania special voluntary compliance program for Pennsylvania and two previous podcasts. We've had a lot of information going out about it. There are emails, there have been all kinds of updates. Do you want to share the latest information that we have?
[9:58] Mike: Yeah, absolutely and the cutoff date for this was originally May 8th of 2021. Pennsylvania has just come out and announced that they're extending it until June 8th of 2021. And I think this is great news for any of you who have not taken advantage of this yet. Give you a little bit of background. Pennsylvania is telling everybody that inventory in Pennsylvania creates nexus, not just for sales tax, but for income tax also. Even when the inventory is located in an Amazon warehouse and Amazon is now collecting the sales tax, there's still an income tax responsibility there. And, the first group of people that got these letters were, Amazon sellers, FBA sellers, people who have inventory in the state of Pennsylvania and Pennsylvania is telling you, we know who you are. This is a great voluntary compliance program. It's only got a two-year look back, two years and change at this point, but we're only going back to January 1st of 2019. So if you're only selling on Amazon, you don't have to worry about sales tax because Amazon has been collecting the sales tax for longer than that. But you do have to worry about the income tax. And they're serious. They're also worried about income tax. Some people are selling on, say Amazon and Shopify. Shopify is not a marketplace. And even if you're under Pennsylvania's hundred thousand dollar threshold, What they're saying is that physical presence overrides economic nexus. And if you have inventory in the state of Pennsylvania, then that overrides the economic nexus, and you still have to register to collect the sales tax on Shopify’s on your own website, as well as paying the income tax. Anyone who's gotten this letter who doesn't take advantage of this program. I just think that's silly. They are going to come after you. There's no question about it. We've had conversations with the state and they're really going to be stepping it up. They're really going to be getting aggressive. And it's not just for people who got the letter. This is for anyone. If you have inventory in Pennsylvania, then Pennsylvania is taking this to the next level. So you might as well go ahead and take advantage of this program. Who wants to state coming back after seven, eight years? If you've been doing business in that state for that long and have had inventory in the state for that long. So a year and change when we're talking about income tax two years in change when we're talking about sales tax. So I definitely recommend taking advantage of this program. If you have inventory in the state of Pennsylvania.
[13:00] Ellie: Thank you so much, Mike. I know we want to talk about some other tough states, but before we go over, what but before we do, can we go over what is a prospective registration?
[13:15] Mike: We can, but I want to circle back to Pennsylvania again. One more time. A lot of people say that while we're a foreign company, we're not subject to the taxes in the U.S. You're not subject to the federal tax because there's a tax treaty between the U.S and most countries, not all countries, but many countries. So people don't have to worry. If they're a foreign corporation, they don't have to worry about, or a foreign-owned corporation. They don't have to worry about the income tax here. Now, states are sovereign. Each one of the states is like their own little country in the U.S and they are not a party to the tax treaty. Now, most of them do follow, out of courtesy, the provisions of the tax treaty, but there are 13 states that do not adhere to the tax treaty. And Pennsylvania is one of those states. So they're going to pursue foreign sellers also. And a lot of foreign sellers say how are they going to get me? They told us how they're going to get you. They have set up reciprocity agreements with a lot of the states where there are reports. So as something comes into the ports, they're going to be, they're looking to impound the inventory. So that's number one and expect more states to start doing this also. Number two. There are a whole bunch of warehouses in the state of Pennsylvania. So if you've got inventory at Amazon, there's a great chance it's going to be in one or more of those warehouses in Pennsylvania, they were going to go after that. And then they're going to go after your account receivables at these marketplaces, everyone's got money at, Amazon. You don't get it, it's not instantaneous, usually, it's sent out to you every week or every other week. And just the rest of the platforms. Pennsylvania plans on going after that money. All right, so now do we want to go, I'm sorry to throw off this great flow that we're on.
[15:25] Ellie: No, don't be sorry at all. Yeah, let's go over what prospective registry registration is for everyone. If I can say it.
[15:35] Mike: Prospective registration is when you use a current date, a current start date in order to get registered. For example, if you were to go to get registered in Florida now because of economic nexus, you would generally use a 7-1 start date. So that's perspective, that's going forward. The same thing in Kansas, you're going to use a prospective date. But let's say you have some other type of nexus or you are just figuring out, they say that six out of ten or one out of two in a different survey company are not compliant when it comes to economic nexus. So maybe you have exposure from three years ago and the states want you to use the date that your nexus actually began. You would use a date from two years ago or three years ago. So we call that a historic registration when you're going backward. And that's the way that the states want you to do it if you have past exposure. But a lot of people, even when they have nexus going backward instead of using historic registration, they decide that they want to register perspectively for multiple reasons either they don't know that you're supposed to go backward or they didn't realize they had a nexus or they don't have the money to go backward and take care of it. And they just want to stop the bleeding today. And they realize that past exposure is still open, but they just want to stop the bleeding today. So it doesn't keep getting bigger and bigger or they don't have the mindset. And they say, no one ever told me about this. So I'm not going to pay it out of my own pocket. Those are some of the reasons why people would register going forward when they should, according to the state's register, going back to the date that the nexus began. Does that make sense?
[17:34] Ellie: Yeah. Thank you so much for going over that. And Mike, we talked about a number of states cracking down on this. Do you want to share?
[17:43] Mike: Yeah, Illinois is the latest state and you never know who's going to become the newest state to start cracking down on this. We started talking about this 60 days or so ago. We saw a couple of clients, a couple of potential clients whom the state had sent letters to and saying, we're now going to audit you. One of them actually, had been registered since January of 2019. The state went after him for three months. Because the economic nexus began in October of 2018. We're now seeing a bunch of it. And at this point we're telling, all of our clients don't try to get registered prospectively. I know that, a lot of you. Really can't pay the back taxes. You've got to figure out a way that you're going to do it. You got to look at doing a VDA or doing some type of historical registration with a, with some type of a penalty waiver, request that a lot of times you'll get it, even if it's not a VDA, but you don't want to be audited and then go back and say, okay, you owe all of these months where the back tax plus penalty and interest and not be prepared for that. A lot of times, if they find you, they're not gonna allow the VDA. A lot of times you're not going to allow any sort of penalty waiver. So that can be an issue and that exposure never goes away. It always stays open because you weren't registered, you didn't file a return. So the statute never ends. So three years from now, you think that you're good because the statute of limitations is three or four years. But they find out that three year period, prior to the date you got registered, you weren't registered, you weren't filing returns. They can go back and still pick up those three years. So we are telling all of our clients that we're doing registrations for, you can't register perspectively, or you don't want to register prospectively in Illinois. I just would not change it. There's entirely too much risk there. Maine started this off. They let everyone get registered. Then they went back and audited and they're still in the process of auditing companies that did not go back in and prove that they did not have nexus as of July 1st, 2018, which is when their economic nexus came into place. So that's almost three full years of back taxes. South Dakota, they don't even let you register. They stopped you during the registration process. So that's another tough state. So Illinois, Maine, South Dakota, absolutely the 3 toughest states out there when it comes to trying to register perspectively. We've seen Wisconsin and Massachusetts start asking a lot of questions, but as of now, they're just asking questions. I don't know of anybody, either our clients or anybody out there, I talked to a lot of people. I haven't heard of any audits yet in either of those states, but I'm getting pretty nervous about the amount of questions that are being asked and, we never know who's going to be the next aggressive state, but I wouldn't be surprised if it was one of these two states.
[21:16] Ellie: Yeah, I think we got everyone nice and nervous here, Mike. I've heard that Maryland is actually doing something nice. Is that true? Can we cheer everyone up?
[21:30] Mike: Yeah. If you're registered in Maryland, it's actually a really good thing they're doing. I think they've done it by mistake or at least partially by mistake, but Hey, we'll take our wins wherever we can get it. So I say this was partially by mistake because a lot of states out there are saying, okay, the businesses in our state, people who are brick and mortar, for example, our restaurants, our bars, our gyms, anybody that got really hurt by the COVID-19 closures, we want to do something nice for them. So we're seeing that in a lot of states, Maryland is saying the same thing. And they're talking about Maryland businesses. And when I hear that type of language, I'm not usually considering someone located in Texas and selling remotely into the state of Maryland. I don't think of that as a Maryland business. I think of that as a Texas business, that's doing some business in Maryland. They're not generating jobs in Maryland. They're not voting people in or out of office. There's not really a, and actually they're taking business away from some of the Maryland businesses. So you generally don't want to reward people from another state, but that's what's happening. So not only the Maryland businesses that are physically located in Maryland, but everybody who's selling into Maryland is being rewarded or being compensated, or being helped out. However, you want to say it because of the tough business climate out there and people trying to make up losses from COVID-19. So what they're doing is giving credits for up to $3,000 per month, and it's for the months of March, April, and May. For returns due in April, May, June, or July. July is where some of these quarterly returns would be, due you know? It all depends. It's gotta be for the months of March, April, or May, and then depending on when those returns were due. Now here's one of the problems that didn't make this available until May 17th, April returns were due in March. What good is that if you're on May 17th. May returns were due by the 20th. Most people get them done a day or two early. So it didn't really help out for the month of May. It will help out for the month of June. So in order to get this money, you gotta go back and amend the returns and that's what we're going to be doing for our clients. The big thing here is you can't have more than $6,000 collected in one of those periods. So if you have $6,100, you're not eligible for one of these credits. And the credit is $3,000 or the actual amount of the tax collected. If it's less than that. So let's say that you collect exactly $6,000 worth of tax. The max that they're going to credit you is $3,000. If you only collected $500 worth of tax, then you are only going to get the $500. If you collect. any more than $6,000, you're just not eligible for the program. So this is a really good thing. And whether they did it by accident when they, whether or not they wanted to include everybody who sells into the state of Maryland this is a pretty nice thing. You could get up to $9,000 back and that's nothing to sneeze at.
[25:12] Ellie: All right, Mike, lots of great information today. Is there anything else you want to touch base on?
[25:20] Mike: Yeah, there's two things. The first thing states are getting aggressive again. During the pandemic shutdown, and some states are just opening back up. They were pretty nice to taxpayers. Prior to the shutdown, they were starting to go after companies because they know that either one out of two or six out of 10, depending on which survey you're looking at they know a lot of people are not compliant for economic nexus. So they had already started gearing up to go after these companies. And then you have this recession. So this is really like the perfect storm because whenever you're coming out of recession, we see increased auditing. We see increased discovery efforts. We see increased collection efforts. So you have these two big, huge events coming together. And we're going to start seeing the states get a whole lot more aggressive. And once the state contacts you. Your options are limited. You're being reactive. And the ability to mitigate some of this past exposure is off the table. Whereas if you're being proactive you still have some options to mitigate some of this past exposure. So we know the states are coming, they're going to be making examples of people. Do not procrastinate, be proactive. At this point, economic nexus is a thing that's not going away. And while they're looking for economic nexus, they're going to find all other types of nexus, so I urge everyone to be proactive. Don't wait till the state finds you. Go ahead and start becoming compliant. That's number one. The second thing, just thanks for joining us today. We appreciate you. We hope that you've enjoyed our presentation and we look forward to seeing you hearing you being with you at future episodes of the Sales Tax and More podcast
[27:24] Ellie: Yeah, and I'll close out here too, by just saying if you have any questions about our services if you would like to know more about what we do, if you'd like access to more information, just reach out to me directly at emoffat@salestaxandmore.com. You can also go right to our website salestaxandmore.com. In addition to the services we offer, we do have an entire series of free webinars that provide CPE credit. We have paid resources on our site as well, and we would love to help you explore all of those options. Thank you so much.
[28:53] Mike: Thanks, everyone. Bye-bye.
[28:56] Outro: Thanks for listening. Be sure to click, subscribe, and check out all of the resources we have out on the web.