Service Sales and Wayfair

I was chatting with a new acquaintance who was a headhunter based in Chicago.  When he asked what I did for a living, I said that I did training on sales and use taxes.  I fully expected the conversation to come to a full stop at that point, as it usually does.  Nobody knows what to say when I mention I talk about sales tax for a living.

But not this time.  He said, "Yeah, I heard something about this...a big Supreme Court decision, right?"

I brightened. "Yep, it's a pretty big topic in my world right now."  At least it's more exciting than sales tax holidays and local rate increases.

As the conversation veered into what HE did for a living, I felt the need to expound upon the potential exposure he had (this is why I don't have any friends).  "Just out of curiosity, do you do any work in Pennsylvania?"

"Yep, I have a couple of really good clients there.  Why, do you know anyone who's looking?"  At least we had in common the fact that we were always working.

"Did you know that headhunting (employment agency) services are taxable in Pennsylvania?"

"What are you talking about?  It's a service.  Services aren't taxable."  He's from Illinois so he's allowed this bit of naiveté.  

"They are in a couple of states - including Pennsylvania."

"Yeah, but I'm in Chicago.  I never even go to Pennsylvania...I do everything by phone."

"Yeah, but the services are being received in Pennsylvania.  And with that new Supreme Court decision, they can go after you, even if you've never set foot in PA.  How much do you bill to PA in a year?"  By the way, cool people just say PA instead of all those syllables.

He kind of looked off into space, "Oh, at least $200,000."  

"Yep, you should be worrying."

Again, no friends.

People who sell services almost never realize that the services might be taxable somewhere.  In the past, that probably didn't make any difference because of the Quill rule about physical presence. My new friend never visited PA and had no physical presence there.  Therefore, no problem.
 
But in a post-Wayfair world, the physical presence hurdle has disappeared.  Now it's just a question of volume of sales.  So if a service provider does enough business in the state, he is probably going to be liable for taxes.

Three pieces of advice that apply to everyone, but to service providers in particular:

1.  List the states in which you sell more than, oh, say $100,000 per year, or make 200 transactions per year (these are the Wayfair thresholds which may or may not be the minimums*).  I hope your accounting system can provide this information.  Otherwise, find a temp to do some serious spreadsheeting (that temp might be taxable too!).

2. Is what you sell taxable in those states?  This is a different type of research.  Use whatever research tools you have available.  

3. If the result is that your sales in a state exceeds those thresholds, contact your friendly sales tax professional.  Then, based on her advice, panic.

*Most states seem to be gravitating towards these numbers.  But not all of them. 

Jim Frazier - The Sales Tax Guy
http://salestaxguy.blogspot.com

See the disclaimer on the right.

Safe Harbor Thresholds? - Yeah, we got yer thresholds right here. And they're just like South Dakota's!

 

States are treating the safe harbor thresholds from Wayfair as the only thing they have to worry about.

They figure if they say that $100,000 in sales or 200 invoiced sales per year is what gives you economic nexus, than they're good.  They're ignoring all of the other stuff about South Dakota's tax system that the Supreme Court seemed to really like.  Things like state administration, simple tax base, simple rates, and belonging to the Streamlined Sales Tax Project. You know, stuff that makes it simpler.

So it's going to be interesting when states like Louisiana, which is pretty much the exact opposite of South Dakota in terms of the simplicity, think they can just impose economic nexus, use the Wayfair thresholds, and they'll be cool.

Do these people read?  Like, the Supreme Court decision?  Or any of the countless articles that have been published on this?

And when the first court shuts them down, you know they're going to get all huffy.

Jim Frazier - The Sales Tax Guy
http://salestaxguy.blogspot.com

See the disclaimer on the right.

The Most Important Piece of Software Acquisition Advice I can Give

 

Because of the Wayfair decision, a lot of you are going to be considering buying sales tax software.  I have a bit of advice for you.

In a previous career, I was in accounting software sales.  And in a subsequent career, I was a software acquisition consultant.  From that experience, I wrote a short whitepaper, which has been lost to the sands of time (and a failure to do proper backups).

That document contained a lot of good advice about believing sales people (don't), trusting demos (again, don't), implementation planning (ha!), etc.

But the best advice I can give, and the easiest, is VISIT the references that you get from the vendor.  Don't just call them....VISIT them.  And if it means you'll have to spend a couple of nights in Vegas on the company's tab, well, that's just the price that has to be paid.

Try to get three references that are in your same line of business, or at least close enough to make the conversations meaningful.  Ditto for company size and multi-state exposure. 

Visiting the references means:

1.  You can look them in the eye when they tell you the software works well.  This is much better than the response of "fine" you'll get in a phone conversation.
2.  You'll be able to spend more time with them than just a phone call, so you'll get more details and hear more about the dirty laundry.
3.  You'll learn more in general just by visiting another business in your line.
4.  You'll have another user you can talk to when things go wrong.
5.  Don't be a piker - buy lunch or dinner.
6.  Paying for a round of golf is even better, if you like that sort of thing.

Your vendor may be leery of you doing this.  But if that's the case, ask yourself why.  I always hated it when they asked for references.

The Sales Tax Guy
    http://salestaxguy.blogspot.com

See the disclaimer on the right.

Don't forget our upcoming seminars and webinars.

"Leveling the Playing Field"

Lemme tell you about a situation that just happened to me.

The bulb on my desk-lamp just went out.  It's one of those oddly shaped fluorescent bulbs.  Now, I could trudge over to the hardware store, and ask the guy in the grungy vest where the light bulbs are.  He'll take me to them because he has nothing else to do, and he'll stare at the display like he's helping.  He'll even pick something and say, "is this what you're looking for," and I'll point out that it looks nothing like the bulb in my hand which I've already shown him twice.  Eventually, I'll find the hanger it should be on.  He says they seem to be out of stock.  I grumble something that sort of thanks him for his help, and head to the next big box hardware store.  I go through the same process again and find the bulb and head to the cash register.  There, they'll ask if I have a discount card, swipe my credit card, I'll sign the device, I'll refuse a bag, and I'll be on my way.  Total time in the car will be at least 30 minutes, with another 20 minutes in the stores for an elapsed time of at least 50 minutes, if not more.

Or, I can go to Amazon, search for the numbers in the search bar that I found on the side of the bulb, and it comes up with suggestions.  I pick the one that matches what I'm looking for and click on the "order" button.  I'll get it the day after tomorrow.  And a moment later, I'll get a receipt via email.

So I saved at least 49 minutes, a little gasoline, and the tedium of dealing with the hardware industry's finest. 

And I didn't even notice whether Amazon charged me tax!

Attention to everyone from retailers to politicians to uninformed journalists - anyone who likes to use buzzwords.  The field has NOT been leveled. 

Unless that hardware store can match the ability to find the item with a couple of keystrokes, be 100% in stock all the time, avoid dealing with uninformed help, expedite the check-out, and do all of that in about 2 minutes, you are still going to lose massive sales to the internet.  Unless you sell high-end stuff like furniture or expensive clothing, my guess is the average consumer doesn't even notice the sales tax.  Because they saved 49 minutes!!!

Now, if I needed that bulb right away, I would have gone on the aforementioned adventure.  Or I might have gone if I just wanted to wander around the hardware store, as guys are wont to do.  But in this case, I saved almost an hour of my time and I can live with a slightly darker office for a couple of days.

And I even shot a few cents to my favorite charity through the Amazon Smile program.

I see all of these articles that claim that the recent decision in SD vs. Wayfair is going to save their businesses by "leveling the playing field."  No, it's not.  See above.

----------

Jim Frazier

jim@jimfrazier.com

jim@takechargeseminars.com

Hopefully, the last few Wayfair articles

http://salestaxnews.blogspot.com/2018/06/hopefully-last-few-wayfair-articles.html

Oh, Gawd - not more Wayfair articles!!!

http://salestaxnews.blogspot.com/2018/06/oh-gawd-not-more-wayfair-articles.html

More SD vs. Wayfair Articles

The number of in depth articles keeps coming, although it does seem to be abating. 

https://salestaxnews.blogspot.com/2018/06/more-sd-vs-wayfair-articles.html

Thanks for the welcome back, Supreme Court

I would like to thank the Supreme Court for their welcome of me back to the world of Sales Tax*.

They really shouldn't have dropped a nuclear bomb though.  A nice card would have been fine.  I like ones that play a tune (hint, hint).

I was going through my Nexus presentation slides after I read the opinion and ... well... gee...there's nothing left.  I'm going to have to put a big "THIS IS GONNA CHANGE" slide at the beginning and it will pretty much apply to everything else in the deck. By the way, I'm going to be doing a NEW nexus webinar covering this topic. Watch this space.

I've spent the last couple of days reading articles about this and I've listed some of the better ones at the bottom of this post.  If you haven't been reading, please do so.  Maybe you'll catch something I've missed.

Here's my take (subject to correction by smarter people than me):

1.  The nexus rules requiring a physical presence in a state before being subject to that state's jurisdiction...poof!  There is no physical presence required. The law we've been relying on since 1967?  It's all gone, man! All that is required is having substantial nexus, which can be achieved in several ways - including simply having a lot of customers in the state.  No people, real estate or stuff necessary anymore (argh..my seminar!).

2.  Congress better get on the case.  The Supreme Court has left the landscape devastated and only Congress can fix things.  Otherwise, there are going to be a lot more court cases in the next few years (oh heck, probably in mere months).  The Supreme Court has passed the ball to Congress essentially saying, "Hey we blew everything up.  We sure hope you have some ideas."

Congress has three bills that they've been looking at, but nothing has been happening.  They really hate touching taxes if they don't have to.  But I'll bet things will happen now.

I actually wonder if the Supreme Court justices were all sitting around the conference table arguing over who got extra mayo on their roast beef and someone said, "Oh, the hell with it...blow it up.  Maybe that will get Congress to do something."  Convince me I'm wrong.

3  If the Supreme Court justices ran for election, I would wonder about the contributions they received from the software companies.  Because you're gonna need software.   And it isn't just big companies that need software.  Small businesses will too.  If you invested in sales tax software stock before last Thursday, congratulations.  I think you and I are long lost cousins, and I'd like a loan please.

4.  As of now, regardless of your business size, you may have nexus in a whole bunch of states.  Some states, like South Dakota who started this mess, at least put a safe harbor in place so that companies that didn't sell much in South Dakota didn't have to worry about it (200 individual sales or $100,000 in sales, annually).  But others don't give that break.  Some states might begin, on MONDAY, to enforce the new rules, regardless of the size of the sellers.

The Supreme Court used South Dakota's rules to show an example of what substantial nexus is.  But states might go nuts anyway!  The Supreme Court did not say that South Dakota's threshold was THE rule, but they sure do like it. I wonder if the reason the Supreme Court decided to take this case was because South Dakota was smart enough to provide an agreeable safe harbor that the Supreme Court could point to as guidance.


5. So what do you do?  I'm not going to say, "don't panic," because you may want to, you know, panic.  One thing to do would be to write your Congressman/woman. Congress can fix this. But they just need to have the gumption to do it.  Maybe take care of the tip at lunch.

But we know how useful they are.  So watch the states you sell to, for both stuff and services.  If you sell more than the safe harbor rules that South Dakota provided, then you're definitely going to to have to deal with more states asking you for money. Avalara put together a nice article summarizing the situation for each state.  Thanks, Avalara.

Speaking of software companies, all those brochures and emails you've been ignoring? You probably want to start looking at them.

Oh, this is so nasty. 

Finally, if I see the words, "level the playing field" one more time (grits teeth)... You'll see why if you read just a sampling of the links below.

*I've been pretty much off for the last year+ for a whole collection of reasons. Let's just say it has not been a great year. But all is now well. Except for the Supreme Court going nuts.

I'm baaacccckkkkk.

---

Jim Frazier

The Sales Tax Guy http://salestaxguy.blogspot.com

See the disclaimer on the right.

---

Here's some recommended reading:

http://www.leveragesalt.com/blog/2018/6/companies-without-a-physical-presence-in-a-state-may-now-be-required-to-collect-sales-tax

http://taxprof.typepad.com/taxprof_blog/2018/06/5-4-supreme-court-clears-way-to-collect-sales-tax-from-online-retailers-in-todays-wayfair-decision.html

http://taxprof.typepad.com/taxprof_blog/2018/06/holderness-south-dakota-v-wayfair-the-more-things-change-.html#more

https://www.jdsupra.com/legalnews/the-u-s-supreme-court-changes-sales-and-65422/

http://money.cnn.com/2018/06/21/technology/wayfair-vs-south-dakota/index.html

https://taxfoundation.org/supreme-court-decides-wayfair-online-sales-tax-case/ along with a discussion of the brief they filed in this case

https://www.avalara.com/us/en/blog/2018/supreme-court-rulesthatsouthdakotacantaxsalesbyoutofstatesellers.html

https://www.jdsupra.com/legalnews/south-dakota-v-wayfair-inc-what-it-98145/

https://www.jdsupra.com/legalnews/breaking-news-us-supreme-court-32978/

https://www.salestaxsupport.com/blogs/industry/small-business-ecommerce/with-quill-dead-you-could-now-have-sales-tax-nexus-everywhere/

This article, from Avalara, discusses the way states to watch in the near term

Finally, I've also read the Supreme Court's opinion.  I'd encourage you to read it.  It's interesting reading and not as difficult as you might think.