LIVE from IRCE 2018! The Supreme Court of the United States is about to make a decision in a landmark case which may affect how sales tax nexus is calculated for merchants in all 50 states. Dave Pelton, Product Line Leader at Vertex, breaks down how this decision could affect retail and how - regardless of the outcome - online merchants may be impacted going forward.

Show notes

Dave Pelton is the Product Line Leader at Vertex.

Vertex is the leading and most-trusted provider of comprehensive, integrated tax technology solutions, having helped 10000+ businesses since 1978. They have services companies such as Amazon, Apple, Best Buy, and Target. Recently, within the last 5 years, they have moved into the ecommerce space. They have brought all of their knowledge from the high demands of bigger brands down to the mid-market at the right price point and service level.

Taxes aren't the sexiest thing to talk about at a meet-and-greet cocktail party, but anybody who sells anything is a potential customer for Vertex.

A lot of times businesses don't think about how they do their taxes as integral to their business, especially if they have them done in-house. It's very difficult for a company to make the switch to a tax provider.

If a company is only in a small number of states, they opt to just put in the rules and rates themselves because it's not that big of a job. It's when a company starts getting into a larger number of states where things get messy because sales tax is different in every state.

States realize that by 2020, 40% of all sales will be online. That is a massive amount of revenue that they lose if they aren't collecting sales tax.

To collect sales tax, the states must have a nexus.

Nexus, also called "sufficient physical presence," is a legal term that refers to the requirement for companies doing business in a state to collect and pay tax on sales in that state.

A lot of ecommerce business try and stay out of nexus so that they don't have to pay sales tax, causing the states to cry foul.

The Supreme Court, after not seeing Congress act on this, is currently hearing a case that could change the rule of nexus from not whether you have physical presence but whether you are actually selling into a state.

The case Wayfair vs South Dakota. In January the Court decided to hear the case and in order for them to do that, 4 out of the 5 justices had to say, "yeah, I think it's worthwhile to talk about this."

What happens if the Supreme Court decides if the rule stays the same?

If it stays the same, the states will continue to go after the customers that aren't paying sales tax.

What happens if the Supreme Court decides to create some federal standard by which we have to transact through?

The Court doesn't want to be too burdensome on companies, but also wants to make sure that states receive their fair share.

Is there any middle ground?

One way or the other, it will be more/less burdensome for companies, and limit/increase sales tax revenue for states.

Wayfair was picked for this case possibly because they have a smaller amount of nexus and because they sell large items in which sales tax can become significant.

Bigger companies (like Amazon) might have seen this coming and have decided to comply to a certain degree.

At one point, Amazon did have nexus in a small number of states but then started to move warehouses into more and more states for faster delivery. This gave them more and more physical nexus as well as the biggest target on their back.

At the end of the day, whether companies have large or small nexus, everyone will be affected by the Court's ruling of Wayfair vs South Dakota.

It will affect companies in other countries that are trying to sell their products to the US. Those international countries may even decide to tighten up their system and make sure they are getting dollars for every sale that's made in the US.

This will affect everyone in the next year or two, so it's better to know all about it now and be prepared whether you're going to take that burden on yourself or not.

Most businesses want to be acquired in the future. If you haven't taken care of your collection and remittance, the acquiring company will typically take an escrow out of the amount that they pay you, saying, "maybe you didn't get audited, but we're going to get audited".

Companies need to think about other important reasons why they might want to collect and remit.