Tax experts said at a TuesdayCFO.com webinarthat since the Supreme Court's ruling last year onthe Wayfair case, state sales and use tax collection obligations have significantly increased, and businesses should ensure they have established processes to fulfill these obligations.

Under the Wayfair ruling, a state can require a business to collect sales and use tax if the business has so-called economic nexus in that state—that is, presence established by the volume or value of transactions conducted there. Economic nexus means a significant expansion of a business's potential tax collection liability, because the obligation can be triggered even if the business has no physical presence in the state.

"This is just another way for states to require businesses to collect and remit sales tax," said Mike Fleming, founder of Sales Tax and More, during the webinar.

States apply different rules for economic nexus, but many are following South Dakota—the state that took the Wayfair case to the Supreme Court. South Dakota triggers a tax collection obligation if a business completes at least 200 transactions per year in the state or reaches $100,000 in sales.

For businesses selling products, determining economic nexus is relatively straightforward; but it is more complex for service providers. Businesses need to check state by state which services are subject to collection. "Some states tax most services, some tax only a few, and others explicitly list the services that are taxable," said Sandra Schaper, senior manager at ResMed.

If a business provides a platform for sales but does not directly sell goods itself, it may still be treated as a marketplace facilitator, and states typically treat it as a retailer, so it must register and collect taxes, Schaper said.

Assessing noncompliance risk

To assess the risk exposure from expanded economic nexus, business leaders can conduct a self-assessment to determine which states they should register in as sales and use tax collectors. "The core question is: 'Which states am I registered in? Have I registered in all states where I need to be?'" Schaper said.

First, start with any place where there is traditional physical nexus, including offices, warehouses or fulfillment centers, and areas with traveling sales staff. Second, evaluate the new economic nexus to determine which states meet the minimum threshold for sales or transaction volume. This requires taking into account each state's specific thresholds.

Then, assess whether buyers are taxable. The largest category of tax-exempt buyers is businesses purchasing goods or services for resale. "When you buy for resale, you don't pay tax, but you need to collect tax from the end buyer," Schaper said.

Even if sales are to tax-exempt buyers, businesses have an obligation to maintain documentation—that is, exemption certificates—to show that the buyer is not required to pay tax and will collect tax from the end buyer. Therefore, managing exemption certificates properly is crucial, ensuring that documentation is organized, up to date, and readily available for submission to state tax authorities.

If a business discovers it should have collected tax but did not, states typically allow the business to voluntarily disclose and apply for penalty relief.

Access the webinar。