Returns are inevitable when you sell a product, whether you are a brick-and-mortar business, an online retailer or both. According to a recent survey published by the National Retail Federation and Appriss Retail, retailers saw about 16.6% of total merchandise sold eventually returned in 2021, which is up from the 10.6% of total returns in 202o. Since you are bound to see returns as an e-commerce business, it is important to be aware of the sales tax refund obligation process.
It seems simple enough, right? You need to refund your customer the sales tax that you collected from them, so just claim a credit on your next sales tax return. Unfortunately, as with just about every area of sales tax, the answer is a little more complicated. Keep reading this article to learn more about your state’s requirements for refunds and sales tax.
How Many Returns Are We Talking About?
You’re probably familiar with the common question, “Cash or card?” However, over the last decade, a newcomer has entered the race. Virtual currencies, and its subset “cryptocurrencies,” which use cryptography to validate and secure transactions, have exploded onto the scene, offering a brand-new avenue for commerce.
However, similar to the lack of consistency among economic nexus and marketplace facilitator laws, legislation concerning virtual currencies also varies wildly state to state.
A Brief History of Virtual Currency
While most people have at least heard of them at this point, there is still a great deal of confusion regarding virtual currencies, how they work and what exactly they are.
Bitcoin is the most popular form of virtual currency, first introduced in 2009 and valued for the first time in 2010.
Halloween is right around the corner. As you prepare to greet trick-or-treaters or dress in costumes for a party with friends, I thought it would be fun to look at how states are benefiting from the holidays, specifically through sales tax.
Obviously, certain Halloween items fall under standard taxes (e.g. Halloween costumes). But what about those treats? From candy for the kids to soda and adult beverages for the grown-ups, keep reading to learn how these sweets and drinks fall under state tax provisions.
Trick Or Treat! Candy Meets Sales Tax Laws
It’s estimated Americans will spend $2.6 billion dollars on Halloween candy this year. Although candy itself is small and fairly inexpensive, when you add up how many consumers are buying it, you can see why it becomes a state tax issue.
Last year’s Wayfair v. South Dakota decision changed the way states define nexus for sales tax purposes. In the past, a business needed to establish physical presence, but the Supreme Court’s decision set precedent for states to establish economic nexus parameters, thereby mandating a certain percentage of sales made within the state are subject to sales tax.
However, it’s important to note that economic nexus doesn’t only affect sales tax. If your company conducts a certain amount of business within the state, it may also be responsible for collecting and remitting all applicable taxes, not just sales tax.
AccountingWeb does a terrific job explaining the following ways states and cities are applying economic nexus to their jurisdiction. Note that some are not necessarily new, but more states ARE considering economic nexus in areas beyond sales tax. Here’s a quick summary to get you started.
Washington is a state in the Pacific Northwest. It is the 18thlargest state and the 13th most populous state. The state was admitted to the union as the 42nd state in 1889.
The Puget Sound in Washington is an inlet of the Pacific Ocean consisting of numerous islands, deep fjords, and bays carved out by glaciers. The remainder of the state consists of deep temperate rainforests in the west; mountain ranges in the west, central, northeast and far southeast; and a semi-arid basin region in the east, central and south, given over to the intensive agriculture. Washington is the second most populous state on the West Coast, after California. Mount Rainier, an active stratovolcano, is the state’s highest elevation, at almost 14,411 feet, and is the 2nd topographically prominent mountain in the continental United States, the first being Denali in Alaska.
Are you curious if you need to be paying taxes on or charging your customers sales tax on your sales of these revenue streams: Software-as-a-Service (SaaS), cloud computing and electronically downloaded software? The answer is, maybe. Because these three areas are defined differently by each state, it’s important to understand how each state’s tax codes approaches them.
Being aware of the tax ramifications in any state your company has established nexus is incredibly important, especially considering last summer’s Wayfair decision. While the U.S. Supreme Court’s decision may seem like it was only directed at online sellers, the truth is that multi-state sellers (such as those generating revenue from SaaS and software) are also affected. Because of the ruling, it will be even easier to establish nexus in more states across the country; companies need to know which taxes they’re responsible for in regards to SaaS, cloud computing and electronically downloaded software.
Here’s a guide to the taxability of SaaS in these nine key eastern states:
- New York
- South Carolina Read More
South Dakota v. Wayfair, Inc. – THE Case
On June 21, 2018, the U.S. Supreme Court ruled 5-4 in favor of overturning its 1992 decision in Quill, which set a standard requiring substantial physical presence before a state could enforce the sales tax collection responsibilities on a seller. In the current case, South Dakota v. Wayfair, Inc., writing for the Court’s majority, Justice Anthony Kennedy indicated “…the Court concludes that the physical presence rule of Quill is unsound and incorrect. The Court’s decision in Quill Corp v. North Dakota, 504 U.S. 298 (1992), and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967), should be, and now are, overruled.”
The phrase of the day is “V-D-A”! In the state tax world, that refers to Voluntary Disclosure Agreements, and we are working on many of these for our clients lately. What are they, exactly, and why should your company perhaps be considering them as well?
What is a Voluntary Disclosure Agreement?
Simply put, entering into voluntary disclosure agreements with states is about companies identifying their potential state tax exposure (sales tax, income tax, or both) and coming forward voluntarily to pay any outstanding liabilities before the state identifies the company as part of an audit or other outreach effort. As states are becoming more aggressive in their pursuit of out-of-state taxpayers, it’s becoming a bit of a game of “Beat the Clock!”
What are the advantages?
Resale certificates provide a sales tax exception for registered retailers. They’re a way for the wholesaler to verify the company they’re selling to is planning to resell the items and collect sales tax during that future purchase. Note that resale certificates are not a new concept. They’ve been around since long before the Wayfair ruling, but as with everything sales tax – that ruling created some new confusion about an older concept! See below.
As Fundera explains:
When you purchase goods with a resale tax certificate, you’ll also need to be sure to collect the exempted tax when you sell the products. Resale certificates usually state your name and address as the buyer, the reseller’s permit number, a description of the purchased item, and a statement that the item in question is being purchased for resale.
Minnesota is a state in the Upper Midwest and northern regions of the United States. Minnesota is the 12th largest state in area and the 22nd most populous state, where 60% of its residents live in the Minneapolis-Saint Paul metropolitan area (known as the “Twin Cities”). This area is the center of transportation, business, industry, education, and government, while being home to an internationally known arts community. The remainder of the state consists of western prairies now given over to intensive agriculture; deciduous forests in the southeast, now partially cleared, farmed, and settled; and the less populated North Woods, used for mining, forestry and recreation.
Minnesota’s first state park, Itasca State Park, was established in 1891, and is the source of the Mississippi River. Today, Minnesota has 72 state parks and recreation areas, 58 state forests covering 4 million acres and numerous state wildlife preserves. The Mississippi National River and Recreation area is a 72-mile-long corridor along the Mississippi River through the Minneapolis-St. Paul Metropolitan Area connecting a variety of historic, cultural, and geologic interest.
There are a lot of misconceptions when it comes to SaaS and economic nexus, especially following last year’s Wayfair decision. Although these technology companies generally aren’t selling a tangible product across state lines, many state online sales tax laws are written in a way that make these businesses liable for collecting and remitting state sales tax.
Are you unknowingly exposing your SaaS company to sales tax risk by creating economic nexus? Keep reading for the truth about five common myths!
Myth #1: Because Wayfair online sales tax statutes provide for a clear date to begin filing, we don’t need to worry about retroactive exposure.
While it’s true that most states are not requiring companies to go back and file retroactively based upon the new economic nexus provisions (certain dollar or transactional thresholds of sales into a state during a year), there is still some retroactivity that companies may be forgetting.