Monika Miles | TaxConnections

21 Jul 2023

The Importance Of State Tax Due Diligence

In today’s complex business landscape, mergers, acquisitions, and other transactions require careful consideration of various financial and legal factors. Among these considerations, state tax obligations play a critical role.

In this article, we’ll discuss the importance of state tax due diligence in business transactions, particularly mergers and acquisitions. We’ll outline how businesses can thoroughly assess their state tax obligations to mitigate risks, make informed decisions, and ensure compliance. We’ll also touch on the identification of potential tax liabilities, transaction-specific triggers, and the scope of tax liability. And finally, we’ll define an effective state sales tax due diligence plan, and how to develop your own.

And for more articles on multi-state tax solutions, click here.

Definition and purpose of state tax due diligence

State tax due diligence refers to the process of conducting a comprehensive review and analysis of a company’s state tax obligations in the context of mergers, acquisitions, and other business transactions. It involves identifying potential tax liabilities, assessing risks, and ensuring compliance with state sales tax laws and regulations. The goal of state tax due diligence is to minimize financial, legal, and reputational risks associated with non-compliance and to provide organizations with a clear understanding of their tax obligations.

Importance of conducting due diligence in mergers, acquisitions, and business transactions

Mergers, acquisitions, and other transactions involve numerous financial and legal considerations. Among these, state tax obligations play a critical role. Failing to address state sales tax implications adequately can have severe consequences, including financial penalties, legal disputes, damage to reputation, and negative impacts on future transactions and partnerships. Conducting thorough state tax due diligence is vital for businesses to mitigate risks, make informed decisions, and ensure compliance with applicable tax laws.

Understanding state sales tax obligations in transactions
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Written by Monika Miles | Posted in State Tax Due Diligence

05 Jul 2023

North Carolina And South Carolina And Sales Tax- SaaS, Software And Other

We continue our blog series with a contrast of a couple of southeastern states – North Carolina and South Carolina – specifically their treatment of technology items for sales tax purposes.

Software as a Service (SaaS) in North Carolina vs. SaaS in South Carolina

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states differ regarding their treatment of sales tax.

Cloud Computing Services are not subject to sales and use tax in North Carolina. The North Carolina Department of Revenue has also noted in a sales and use tax bulletin that charges to access computers by way of a remote terminal device are not taxable.

South Carolina taxes charges to access a database or online information service. This includes legal research services, credit reporting, research services, and charges to access an individual website. Charges for computer software delivered by an application service provider are also subject to sales and use tax. The South Carolina Department of Revenue considers an application service provider to be sufficiently similar to database access transmissions, which were ruled taxable in a sales and use tax revenue ruling by the state. SaaS is taxable in South Carolina.

Software in North Carolina vs. Software in South Carolina
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Written by Monika Miles | Posted in North Carolina Sales Tax • South Carolina Sales Tax

14 Jun 2023

The Impact Of Economic Nexus On Small And Mid-Sized Businesses

As we get ready to acknowledge the 5th anniversary of the US Supreme Court’s groundbreaking ruling in South Dakota v. Wayfair (June 2018), we wanted to revisit and summarize the ramifications of that decision as we sit here 5 years later. Small and mid-sized businesses are finding themselves in a tax landscape that continues to evolve due to the introduction of economic nexus laws over the last 5 years. It’s essential for these businesses to grasp and navigate these laws to stay compliant and steer clear of potential penalties. In this article, we’ll delve into the concept of economic nexus, discuss its impact on small and mid-sized businesses, and offer practical advice for successfully managing this intricate tax environment.

Understanding Economic Nexus
Definition and evolution of economic nexus laws
Economic nexus refers to the sufficient economic activity threshold that triggers a tax obligation for businesses in a particular state. These laws have evolved in response to the Wayfair case in 2018 and the growth of e-commerce and aim to capture tax revenues from remote sellers.

Factors determining economic nexus thresholds
States consider various factors when determining economic nexus thresholds, such as sales revenue, transaction volume, or a combination of both. These thresholds can vary from state to state, creating a complex compliance landscape for businesses operating across multiple jurisdictions.

Comparison of economic nexus vs. physical presence nexus
Traditionally, businesses were only required to collect and remit sales tax if they had a physical presence, such as employees, contractors, or a store or office, in a state. Economic nexus laws expand tax obligations to businesses that surpass the economic activity thresholds, regardless of physical presence. Fundamentally, this shift has significant implications for businesses operating in the digital marketplace.
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Written by Monika Miles | Posted in Nexus On Small And Mid Sized Business

30 May 2023

Mississippi Reverses Its Stance On Taxing SaaS

As businesses both utilize and develop technology product including electronically downloaded software and cloud computing or Software-as-a-service (“SaaS”), the taxability of these products continues to be varied and can be confusing.

The SaaS model continues to be a very popular method of delivering software to users. If you are a frequent reader of our blogs, you know that many states tax the SaaS revenue stream and many do not. In this article, we take a look at how the rules in Mississippi have recently become more defined in this space and the state has changed its taxability of SaaS.

The taxability of SaaS in MS largely depends on the nature of the specific software being provided to customers. The state of Mississippi, currently taxes the SaaS revenue stream. One caveat is that the SaaS product needs to be hosted on a server owned by the customer located in Mississippi.

Effective July 1, 2023, as outlined in SB 2449, Mississippi will exempt the SaaS revenue stream from sales tax. Furthermore, it will exempt remotely accessed SaaS (computer software located on a server outside of the state and accessed only via the internet) from sales and use tax. That means that SaaS subscription revenue received from Mississippi customers will not be subject to sales tax, even if the seller has met the nexus thresholds in the state.
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Written by Monika Miles | Posted in Mississippi Tax

23 May 2023

Sales Tax And Due Diligence In An M&A Deal

The fast-paced world of private equity investment, mergers and acquisitions (M&A) and the art of aligning business interests in the perfect deal certainly sounds glamorous. It’s often where Wall Street meets Hollywood and depicts people reaping lots of money in the process! There are so many components in the making of a successful merger, including synergies between the companies’ cultures and employees, financial aspects, logistics, and other important areas. Tax matters (and in our world, state tax matters) are often the last pieces of the puzzle to be brought to the deal process. And while taxes are rarely the things making the headlines in a transaction, they really are an important piece of the overall transaction – both on the state income tax side (which we’ll discuss briefly below) and the sales tax side. And all the things that we discuss regularly here in our blog – nexus, taxability, look-back, exposure and remediation – they all come up in an M&A transaction. And if the exposure is big enough, it can derail a deal. Unfortunately, we’ve seen it happen!

Some Basics

In an acquisition of a company the deal is structured as either the purchase of the stock of a company (an equity deal) or its assets (an asset deal). From an income tax perspective (federal or state), the structure of the deal makes a difference as well.

Regarding sales tax, on the actual purchase itself, there is generally no sales tax due on the consideration paid for a company in equity-based deals. However, there may be sales tax ramifications on the purchase of assets in an asset-based deal. Most states have exemptions for assets transferred as part of an acquisition (for instance an “occasional sale” exemption), but it is always important to understand the transaction itself, including the actual assets transferred, timing of such transfers, etc.
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Written by Monika Miles | Posted in M&A Deals • Sales And Use Taxes

28 Apr 2023

California And Washington: Sales Tax – SaaS Software And More

If you’re a regular reader of our blogs, you know that we have, for the last few years, featured a different state of the month, and have profiled a number of things about that state. After running through the 50 states at least once, we thought we might try something a little different. We’d still like to feature our fabulous United States, but maybe do some compare and contrast in the areas that many of our readers and clients find to be the most useful. We look forward to your feedback.

This month, we contrast a couple of west coast states – California and Washington – specifically their treatment of technology items for sales tax purposes.

Software as a Service (SaaS) in California vs. SaaS in Washington

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. As you’ll see below, despite the fact that both CA and WA consider themselves to be tech-friendly (as homes to companies such as Apple and Microsoft, respectively), they differ in their approaches to the application of sales tax.

In California, there must be a transfer of tangible personal property for a transaction to be subject to tax. Sales and use tax does not apply to software as a service (SaaS) in which a customer gains access to software on a remote network without receiving a copy of the software while the seller retains exclusive possession and control of it. As such in CA, SaaS is not taxable.
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Written by Monika Miles | Posted in TaxConnections

04 Apr 2023

Sales Tax, Software, SaaS & Consulting- How They Work Together

There are sales tax software companies out there (some of whom are our strategic partners, so this is where this fine line we walk gets a little curvy) who will tell companies how easy it is to “bolt on” their solution to billing or CRM systems. With the flip of a switch, sales tax compliance can be done monthly…if only the company knows where it has created nexus, knows exactly how to code its products, and has properly contemplated the ramifications of dealing with retroactive liability and also, possibly, income tax. We built a lot into that last sentence. Here’s why – it is never as easy as flipping a switch. We all know that, and yet, we realize how tempting it is for companies out there to want to jump to the “easy” software solution.

In this blog, we want to share some very common questions we get from clients and prospective clients, and share why the “people element” is still a necessary (and vital) element in the sales tax compliance equation. Let’s start with a few basic requests that we frequently encounter.

Can You Help us with Sales Tax Registrations in Multiple States?

Of course we can! But let’s ask a few questions first.

Do you have nexus? Nexus can be of the physical presence type (employees or independent contractors, an office, or inventory within the state), or economic nexus (a certain threshold amount of sales – often referred to as Wayfair nexus in honor of the 2018 US Supreme Court case).If so, when did you create it?

Many of the sales tax compliance software companies don’t talk much about retroactive exposure. Their sales people are focused on signing clients up for future software sales. We know, that sounds a bit cynical. But, we’ve had many conversations with clients who buy the software without really considering their potential retroactive exposure (more on that below).

If you have created nexus some time ago (2020, 2021), are you prepared to deal with paying any tax which may have been due from those time periods?
Have you considered voluntary disclosure agreements (see below)?

Have you reached out to any customers to determine if they may have self-remitted the tax already, OR can you go back to customers to collect that back tax that you may not have collected? (Oh what a Pandora’s Box!)
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Written by Monika Miles | Posted in Sales And Use Taxes

21 Mar 2023

Taxes And Business Climate In Idaho

This month we travel to the Pacific Northwest state of Idaho. Nicknamed, the gem state, Idaho is the 14th largest of the 50 states. It is known for it’s mountainous landscapes, vast areas of protected wilderness and outdoor recreation areas.

Forming part of the Pacific Northwest (and with the associated Cascadia Bioregion), Idaho is divided into several distinct geographic and climatic regions. The state’s north, relatively isolated Idaho Panhandle, is closely linked with Eastern Washington with which it shares the Pacific Time Zone- the rest of the state uses the Mountain Time Zone. The state’s south side includes the Snake River Plain which includes most of the population and agricultural land. The state is quite mountainous, containing part of the Rocky Mountains.

Business Climate
Idaho is an important agricultural state, producing nearly one-third of the potatoes in the United States. Additionally, all three varieties of wheat, dark northern spring, hard red, and soft white are grown in the state.

Idaho’s industrial economy is growing, with high-tech products leading the way. Since the late 1970s, Boise has emerged as a center for semiconductor manufacturing. It is the home of Micron Technology, the only U.S. manufacturer of dynamic random-access memory (DRAM) chips. Hewlett-Packard has operated a large plant in Boise since the 1970s, which is devoted primarily to Laserjet printers production.

A number of fortune 500 companies started in or trace their roots to Idaho, including Safeway in American Falls, Albertsons in Boise, JR Simplot across southern Idaho, and Potlatch Corp. in Lewiston. Zimmerly Air Transport in Lewiston-Clarkston was one of the five companies in the merger centered around Varney Air Lines of Pasco, WA, which became United Airlines and subsequently Varney Air Group which became Continental Airlines.
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Written by Monika Miles | Posted in Idaho Taxes

10 Mar 2023

Why Economic Nexus Threshold Changes In South Dakota May Affect Your State

Close to five years ago, the landmark decision in the Supreme Court case of South Dakota v. Wayfair (2018) changed the sales tax landscape across the country. This decision made it so that states could require companies who met specific sales thresholds to collect and remit tax on sales, even if the company did not have a physical presence in the state. As of today, every state that has sales tax has enacted some sort of economic nexus law, but they have varying transaction threshold requirements, which makes it challenging for online sellers to keep up. As more states, including the state that started it all, jump on the bandwagon, could 2023 be the year transaction thresholds are done away with altogether?

What Are The Challenges Of Current Economic Nexus Threshold Requirements?

There are currently six broad categories of economic nexus thresholds, including:

$100,000 (17 states)
$100,000 or 200 transactions (23 states, Puerto Rico and the District of Columbia)
$100,000 and 100 transactions (one state)
$250,000 (two states)
$500,000 (two states)
$500,000 and 100 transactions (one state)

However, this isn’t where the differences between state economic nexus thresholds end. Some states’ thresholds only include taxable sales of tangible personal property (TPP), while others are based on gross sales. Some state thresholds include services, but they aren’t counted in others. If you sell through a marketplace, that adds another layer of complexity — some thresholds include sales made through a marketplace, but some do not.
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Written by Monika Miles | Posted in Economic Nexus Threshold Changes

24 Feb 2023

Important Updates Marketplace Facilitators Need To About New INFORM Consumers Act

Following the 2018 South Dakota vs. Wayfair U.S. Supreme Court decision that eliminated the physical presence standard for sales tax nexus, not only have most states enacted economic nexus legislation, but many have also started requiring marketplace facilitators to collect and remit sales tax on behalf of the third party sellers.

A marketplace facilitator (or MPF) is a business or organization that contracts with third parties (“sellers”) to sell goods or services on its platform, facilitating the sales that arise (large examples include Amazon or Etsy). These companies facilitate sales of goods or services between a seller and a buyer – but generally, the MPF does not take title to or even carry the inventory.

Because of the complexity that can arise for these marketplaces, we often share articles detailing the most up-to-date marketplace facilitator laws. You can read some of our past articles here and here. Today, we share what the new INFORM Consumers Act means for marketplace facilitators.

What Is The INFORM Consumers Act?

The INFORM Consumers Act, which was signed into law on December 29, 2022, is designed to reduce and ideally eliminate counterfeit sales. It was signed into law as a last-minute addition to the Consolidated Appropriations Act of 2023, a bill that authorizes federal government spending for the upcoming year. The consumers act applies to online marketplaces and requires them to collect, verify and make available to buyers certain identification information for ‘high-volume third-party sellers’ on their platform (sellers with more than 200 transactions and $5,000 in revenue in a 12-month period). The Consumers Act requirements go into effect on June 27, 2023.

What Do Online Marketplaces Need To Implement To Comply With The INFORM Consumers Act?

Online marketplaces must implement policies, procedures and controls to comply with the following new requirements:
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Written by Monika Miles | Posted in Inform Consumers Act

14 Feb 2023

Love And Taxes On Valentines Day

Romantic dinners, bouquets or chocolates – how are you spending Valentine’s Day this year? As we approach the holiday of love, we thought it would be interesting to see how sales tax applies to different products or situations you may encounter!

Gifts: Taxable Or Not?

Are you thinking of getting your valentine a box of chocolate, candy or other food gift this year? Food and candy sales tax varies depending on the state. What you pay in taxes in one state for a box of chocolates will be completely different in another. One of our latest blog articles dives into specific state tax rates on candy.

If you buy them another sort of gift, such as a stuffed animal or flowers from a brick and mortar store, your local state sales tax will apply to that item. Again, state sales tax varies.

If you buy the gift online, you will most likely have to pay sales tax, thanks to the 2018 Supreme Court Case, South Dakota v. Wayfair, Inc. Every state that has sales tax now has implemented some level of economic nexus. Oh, and shipping? Yes, maybe sales tax is due on that fee as well — depends on the state and how it’s stated on the invoice.

Event Tickets

Written by Monika Miles | Posted in TaxConnections

02 Feb 2023

A Simple Step-By-Step Guide To Stay Ahead Of Sales Tax Compliance

Sales tax compliance can be overwhelming, and it’s even more complicated if you, as the seller, have an economic presence in multiple states because of the number of things to keep track of. This step-by-step sales tax guide is a useful place to start to ensure you stay ahead of your filing requirements. We always try to remind clients that sales tax is a pass-thru fiduciary tax. If you collect it and remit it correctly, there should be no liability to the seller. Where it gets dicey is when the seller doesn’t correctly collect, remit and report in jurisdictions in which it is required to do so.

1.) Discover Which States You Meet The Physical Or Economic Nexus Threshold In

The first step is to determine where your business may be liable to collect sales tax. Before 2018, this was more straightforward. If you had a physical presence in a state, you were responsible to collect and remit sales tax. The 2018 U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc changed the sales tax landscape by allowing South Dakota to enact economic nexus legislation, meaning that sellers who had a certain amount of economic presence in the state (either by reaching a certain number of sales or amount of money from sales) were also liable to become compliant in that state, even without a physical presence. Other states quickly jumped on the bandwagon, and today every state has some level of economic nexus legislation. Economic nexus threshold requirements vary by state, so check out yours here. It’s important to note that the enactment dates for economic nexus measurement also differ from state to state, so there are several moving parts in correctly determining the nexus start date. Sellers now need to consider BOTH their physical presence and economic nexus in a state to determine the correct reporting date.

2.) Determine If Your Products And Services Are Subject To Sales Tax

Now that you know which states you have reached nexus in, it is time to figure out which products and services are subject to sales tax and the state sales tax rates. Heads up — this varies greatly by state, and in some states it can even vary by city or county. In general, the sale of Tangible Personal Property (TPP) is subject to sales tax collection in the United States, but there are plenty of exemptions. And it’s not always clear what TPP is. What about software? Software as a service (SaaS)? Other digital products?
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Written by Monika Miles | Posted in TaxConnections