Businesses currently operating in the United States or planning to tap into this market should review their tax obligations as the rules are everchanging.
The majority of States throughout America have enforced legislation that allows tax authorities to collect revenue from vendors of goods and services regardless of whether they have a physical presence in the United States or are simply trading via digital channels.
This means that all businesses, both local and outside of the US are obligated to collect and remit sales tax even if their operations don’t comprise physical locations like shops, factories or offices.
“The good news is that specific relief is available in most circumstances when the sales are to customers that are themselves resellers. However, to qualify for this concession, the seller has a duty to record sales accurately and collect any necessary exemption or resale certificates”, says Dan Lowe, Partner, Business Advisory Services at Grant Thornton New Zealand.
“The bad news is that some states have adopted a 1 January 2019 enforcement date, with most choosing dates as far back as 1 October 2018."
“Also, the threshold as to when sales and use tax becomes relevant is quite low in most states. So, businesses may now need to take immediate action if they haven’t done so already. Non-compliance could result in hefty penalties and interest”.
The catalyst for change came by way of the 2018 Supreme Court decision – South Dakota v. Wayfair (‘Wayfair’) which overturned a longstanding precedent requiring sellers to have a physical presence in order for a state to collect sales tax.
During the case, the Supreme Court not only acknowledged that the physical presence rule negatively impacted South Dakota’s tax revenues, but that it “is unfair and unjust to those competitors, both local and out-of-state, who must remit the tax”, recognising that market participants were no longer competing on an even playing field.
Lowe says, “The Wayfair decision has subsequently caused a domino effect across America creating more obligations that previously didn’t exist.
“The changes to how we now do business with one another – for example, via digital channels - mean that the previous laws are rapidly becoming outdated. This is causing tax authorities around the world to put additional measures in place to maintain their tax take."
“There’s a good chance that a lot of Kiwi companies might not yet be aware of these changes; it’s critical that they understand what the thresholds and effective dates are in each state, as well as knowing where they need to file and when”.
A list of the latest thresholds and effective dates, by state, can be found on grantthornton.co.nz/insights.
Dan Lowe
Partner, Business Advisory Services
Grant Thornton New Zealand
T +64 9 922 1201
E dan.lowe@nz.gt.com