The Evolution of Wayfair & Tax Reform
“Wholesale changes” and “fast-moving” aren’t phrases often used to describe tax law. However, as we approach the second anniversary of the passage of the Tax Cut and Jobs Act (TCJA) and are now over a year removed from the Supreme Court’s ruling on the Wayfair Case, these terms have been used much more frequently. With the end of the calendar year quickly approaching, it’s a good time to revisit some of the developments stemming from Wayfair and the TCJA to prepare for what’s next.
Wayfair: Not Just for Retail.
The June 2018 Wayfair ruling brought with it a flurry of sales tax activity at the state level. Gone are yesterday’s old physical presence standards, replaced by minimal sales and/or transaction thresholds, making it even more challenging to stay on top of tax liability if you conduct business in multiple states. Sales tax compliance is now required in most states when reaching $100,000 in sales or 200 transactions. Recently, a state tested new waters under the Wayfair ruling by issuing a sales tax filing threshold of $1. It’s easy to see how the new filing requirements could add up for businesses with transactions throughout the United States.
Think that the Wayfair decision is only for retailers? Think again; while it’s a much clearer cut for retailers, they are far from the only ones impacted by Wayfair. Each state’s laws regarding what is and isn’t subject to sales tax differ. Meaning that even if your product or service is exempt from sales tax in your home state, you may have an obligation to collect and remit sales tax in other states. Even if exempt, you may still have reporting requirements.
Most states do allow sales tax exemptions for B2B (business-to-business) transactions. What’s becoming more apparent is that the burden of proof is on the seller to obtain evidence of the buyer’s exemption from sales tax and report sales activity to the other states to rightly claim the exemption. Because of this, filing requirement thresholds, for many states, are determined based on gross sales, not taxable sales.
If the complexities of keeping up with state tax laws weren’t intricate enough, almost immediately following the Wayfair decision, state taxing authorities began aggressively seeking out businesses that owed money. Nevertheless, there are ways you can be proactive and address these issues before they become compliance problems.
Tax Cuts & Jobs Act
It’s hard to believe, but tax reform is nearing its second anniversary, and as it does, clarity into its impact continues on several fronts. For example, the IRS recently issued final regulations on the 100% bonus depreciation provisions contained in the reform. And we learned many lessons from the first filing season completed under the recent tax reform. As more regulations are issued, we can gain further insight into the true impact of tax reform and the best ways for a business to prepare and respond.
While tax reform has caused quite a stir, there are many planning opportunities that you can take advantage of, no matter your business size or industry. These options can help minimize or even eliminate taxes created under reform.