Decoding the US sales tax system
Today, we have relationships with ecommerce players such as Amazon, eBay, Etsy, Shopify, Bonanza and more which see us managing the US sales tax obligations for the marketplace merchants, says Patrick Riley, vice president and corporate development of Taxcloud, sales tax compliance service.
Last year saw the US Supreme Court in the South Dakota v. Wayfair case passing a ‘green light’ for US states to charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state. This meant that the law required merchants with at least $100,000 in sales or 200 transactions in the state to collect and remit sales tax on those purchases. The law overhauled the longstanding legal procedure which saw states collecting sales tax from sellers with a physical presence in a bid to level out the playing field, helping retailers to compete with ecommerce players such as Amazon.
“In the US, most marketplace merchants that sell on their own website would have to collect and remit the sales tax. We built a platform which automated this process.,” says Patrick.
“The web’s only free sales tax compliance service,” as the Taxcloud describe their offering, leverages their knowledge to allay the bureaucracy of the US sales tax also known as ‘nexus’ – which represents a level of connection between a taxing body such as state and an entity such as a business. Before the Wayfair, this meant that a business entity with a substantial physical presence in the US such as offices, stores, warehouses, employees and staff would have been a subject to the sales tax. The Wayfair case changed that reality. It saw the court recognising the Internet as an enabler for businesses to establish nexus in a state via ecommerce sales or digital services.
Taxcloud use a four-pronged approach to help merchants to comply with the US sales tax. First, they determine the applicable sales tax rate based on product and service taxability. Second, sales tax is collected at the time of the transaction on the sellers’ site when their customers checkout. Third, they file returns and remit merchants’ collected sales tax proceeds to the appropriate state and local jurisdictions. Fourth, sellers can expect ongoing support in case of any state-issued notices or audit enquires.
Asked ‘what’s the company’s USP is,’ Patrick says that”For states where the marketplaces aren’t collecting, you still have your own website and obligations to manage,”as marketplace heavyweights such as eBay promised to collect and remit internet sales tax on sellers’ behalf. “We are able to do calculations and offer a suite of services, which puts us at an advantageous position.”
Patrick believes the sales tax will continue expanding to further states, penetrating the country and putting pressure on more omnichannel sellers to comply with the legislation. “The number of states where the law is active is currently around 25, and you are going to see the increase of collecting and remitting in more states.”