Happy Anniversary Miles Consulting Group!
We are happy to announce our 19 year anniversary this month! It seems like just yesterday when we left Big 4 public accounting! The firm was founded in March of 2002, when two state tax consultants got the entrepreneurial itch and decided that we could build a practice to better serve clients by focusing on their needs, being cost effective, and offering unwavering client service! And I believe that in the last 19 years we’ve done that most of the time!
In traipsing down Memory Lane a bit this month, I decided to Google which other companies were founded in 2002, and one specifically caught my eye and made me smile. The consumer products company, Wayfair, is also 19 years old in 2021! Of course, our readers know that we talk a lot about Wayfair – not just because they share our anniversary year and sell some cool products. In 2018, the United States Supreme Court ruled on the concept of economic nexus in its ruling in South Dakota v. Wayfair, and it’s safe to say that life hasn’t been the same in the world of state tax consulting ever since. In the last three years, we’ve helped countless companies determine where and when they’ve created economic nexus and then how to come into compliance. And I don’t think we’re done yet!
California- Tax Relief for Marketplace Facilitators
On the heels of the U.S. Supreme Court decision in South Dakota v. Wayfair (2018) many states enacted marketplace facilitator laws to tighten the sales and use tax collection net and reduce their tax collection costs. The marketplace facilitator laws give states one-stop collection of sales and use tax: one platform reports the tax of many sellers and the state only has to look to that one platform for uncollected tax. Why chase many debtors when one will pay for them all?
The marketplace facilitator laws are still relatively new, and anytime a law is new there will be those that are unaware of the change. So, the State of California graciously passed two laws to provide some tax relief for the unwary marketplace facilitators. Unfortunately, the tax relief laws are buried in the law books and are known to very few taxpayers. Fortunately, because of Miles Consulting Group’s careful study of California’s marketplace facilitator laws we discovered these hidden lifelines for California marketplace facilitators. We have also requested and received from the state an operations memo that was written for the California Department of Tax and Fee Administration’s tax auditors, which we will summarize in this blog.
What You Need To Know About Alcohol Taxes And Wayfair Legislation
There's nothing quite like winding down after a long week with a glass of wine, but what you might not be aware of is the complex tax regulations that are impacting the sale of your alcoholic beverage of choice.
For most people, alcohol taxes aren't particularly notable beyond how they impact the final sales price. For businesses involved in the sale of alcohol (especially online retailers) however, recent changes due to the pandemic and the 2018 Wayfair decision are creating a bit of a mess.
The first factor in this mess are the taxes placed on alcohol sales. Alcohol taxes are particularly complicated for a number of reasons. Some of this is due to its nature as a legal but still heavily regulated drug. Some of it may also trace back to the historic importance of alcohol taxes as a source of revenue for the U.S. government.
Taxes on alcohol have also been seen as a way of offsetting the negative externalities associated with alcohol consumption, including motor vehicle accidents, the burden of alcohol-related illness on the healthcare system and alcohol-related violence.
The inherent complication of federal excise taxes and the fact that alcoholic beverages are taxed at different rates depending on the amount of ethanol contained in the drink only adds to the complexity. And that's before you consider the sales taxes on alcohol at a state and local level. Those rates also depend on the previously mentioned factors, which are individually weighed and applied by each state and local government.
What this all boils down to is that, similar to economic nexus and marketplace facilitation regulations, the rate alcohol is taxed at varies wildly across the country.
Readers of this blog are well aware of the complexity of Wayfair-related legislation. When you throw in alcohol taxes, it gets exponentially worse.
In terms of marketplace facilitator legislation, recent booms in the sale and purchase of alcohol online (which comes with its own complications) due to the pandemic and relaxing restrictions on those sales are putting some retailers and marketplace facilitators in a sticky situation. In regards to online sales of alcohol made across state lines, states are still determining how economic nexus factors in within those situations as well.
Accounting Today recently shared how Uber's upcoming acquisition of alcohol delivery service Drizly as well as a recent round of funding for Vivino, an online wine marketplace, likely herald many upcoming changes to online alcohol sales and the taxation of them.
For instance, California's Alcoholic Beverage Control department ("CA-ABC") issued a directive on November 18, 2020, based on "numerous inquiries seeking clarification or further guidance in the context of unlicensed activities and licensee relationships with unlicensed service providers."
The CA-ABC "remains concerned that certain activities by Third Party Providers may violate California law, particularly in the areas of sales by a person without a license…" Nevertheless, the CA-ABC "believes that licensees and Third Party Providers can form business relationships that facilitate lawful transactions for sales of alcoholic beverages over the Internet."
The CA-ABC directive describes the limitations and responsibilities of the alcoholic beverage licensee and the Third-Party Provider; in other words, marketplace facilitators.
It would behoove all online marketplace facilitators that intend to sell alcoholic beverages to review this directive. In fact, Texas considered the "California model" in their "Marketing Practices Advisory - MPA056".
In 2019, the Texas Alcoholic Beverage Commission ("TABC") started issuing "Consumer Delivery Permits" that allow third-party companies to make alcohol deliveries; the third-party companies are permitted to pick up alcohol from businesses licensed by the TABC, such as bars, restaurants and liquor stores.
Complying with tax regulations is always important for online retailers, but it's especially important for businesses making sales on alcohol.
If businesses fail to accurately collect and remit these taxes, they face more than just a potential audit or fines. Instead, they may lose necessary alcohol beverage licenses and their ability to make sales of alcohol altogether.
If you have questions regarding the taxation of alcohol and how it impacts your business, or any other state sales tax compliance questions, please contact us today. We're happy to clarify any multi-state tax issues you're trying to navigate and ensure your business stays tax compliant.
Maryland Jumps Aboard the Bandwagon to Tax SaaS and Digital Products
Readers of this blog know that we regularly post about states which tax SaaS and digital products, because so many of our clients face these issues. Now, Maryland has enacted House Bill (HB) 932 that will subject Digital Products such as e-books, songs and movies along with electronically delivered software, including Software as a Service (“SaaS”) to sales and use taxation. The legislation becomes effective on March 14, 2021.
A Bit of History
Up until now Digital Products in Maryland were not subject to sales and use tax. Consequently, the sale of canned software was taxable only if delivered in tangible form.
Focus on Hawaii
Aloha! This month we travel west to the island paradise of Hawaii. In the state, you can attend a luau to experience true Hawaiian culture, relax on the beach or hike in one of the many tropical forests or mountains.
Hawaii is unique because it the only state made up of part of the volcanic Hawaiian archipelago, which consists of hundreds of islands spread over 1,500 miles. At the southeastern end of the archipelago are eight islands known as the state of Hawaii. They are: Niihau, Kauai, Oahu, Molokai, Lanai, Kahoolawe, Maui and Hawaii.
Due to its central location in the Pacific Ocean and its 19th-century labor migration, Hawaii’s culture is strongly influenced by North American and Asian cultures, in addition to its indigenous Hawaiian culture. This is exhibited by the many customs and food cuisines that the state has to offer. For example, it is customary to bring a small gift for one’s host (i.e., a dessert). Many Hawaiian plates have been influenced by Polynesian, Asian and American foods as well.
How States Have Benefited From The Wayfair Decision
Over the last several years, the U.S. Supreme Court's decision in South Dakota v. Wayfair has led to rule changes regarding online sales tax in almost every state in the country.
The ruling, that South Dakota's economic nexus law was constitutional and that the state could require companies who met certain sales thresholds to collect and remit sales tax on sales to South Dakota customers, even if the company had no physical presence, has impacted states, retailers, online marketplaces and even brick-and-mortar businesses.
In this article, we'll discuss the positive effects of the Wayfair ruling on states that have implemented Wayfair-related legislation.
Perhaps most notably, Wayfair-related legislation and economic nexus have allowed states to fare better during the pandemic than states that have not implemented it.
The pandemic resulted in an explosion of online shopping in the spring of 2020, which has persisted in the time since. Those states that have economic nexus in place have seen a drastic increase in tax revenue from online sales tax collections, especially as many retailers have triggered economic nexus in states they previously did not have nexus in.
As one example, Texas is facing budget shortfalls due to the pandemic, but it is far less than was originally projected, largely in part due to the implementation of Wayfair-related legislation.
Even before the pandemic took hold in early 2020, states have been experiencing the financial benefits of economic nexus and marketplace facilitation.
In 2018 alone, more than 20 states implemented Wayfair-related legislation, with another 20 implementing it in 2019. While not every state has reported specific numbers in regards to the increase in online sales tax revenue they have seen due to these laws, the revenue increases are pretty much across the board.
Lawmakers in the two remaining states with a general sales tax that have yet to implement economic nexus, Florida and Missouri, are pushing hard for 2021 to be the year it gets implemented.
States have also been able to cash in on additional revenue collected from marketplace facilitators. While these gains are not as impressive as the revenue from economic nexus laws, marketplace facilitation legislation has allowed states to standardize and concentrate on large marketplace facilitators as a source of tax revenue as opposed to trying to source taxes from many small online retailers.
Overall, states have largely benefited from the Wayfair decision and further advancements to economic nexus and marketplace facilitation legislation are sure to be on the way.
If you have questions regarding Wayfair-related legislation, or any other state sales tax compliance questions, please contact us today. We're happy to clarify any multi-state tax issues you're trying to navigate.
An Update On The Taxation of Remote Workers
When the U.S. began to feel the full brunt of the COVID-19 pandemic, businesses from every industry transitioned their employees to remote working. Nearly a year later, many of those employees are still working remotely.
In July, we shared a post discussing the tax implications of remote workers and whether they created nexus. The situation has continued to evolve since then, so we'd like to share an update on the tax implications of remote workers.
When the pandemic first hit, many states were forced to consider whether remote workers would create "nexus," which is the amount of contact from a company needed in order to be obligated to collect tax in a state. For many employers, this could create additional tax obligations in states where they previously did not have nexus. Additionally, questions arose regarding the taxation of employee's income and which state would collect the tax.
As is often the case in the tax world, states came to a variety of answers. Some states specified they would not assert nexus on companies solely due to short-term telecommuting situations, others specified that employees displaced due to the ongoing pandemic would not create nexus, whereas others waived nexus for a period of time, but after that time had passed, remote workers would create nexus. Other states did not, and have yet to issue specific guidance on the subject.
This document from Hodgson Russ LLP offers a breakdown of remote working guidance on a state-by-state basis, including information on which state will tax the income of the remote worker.
As previously stated, states have come to differing conclusions on the subject. This has created sticky tax situations in a handful of cases, most notably in New England.
In October 2020, New Hampshire sued Massachusetts over the taxation of remote workers. The case eventually made its way to the U.S. Supreme Court, which in January 2021 asked the solicitor general to weigh in on whether it should hear the complaint.
In regards to income tax, New York issued controversial guidance in October 2020 that specified that if the employee was working remotely due to "convenience" rather than "necessity," the tax would be sourced to the state where the employer is located. While it seems like most remote workers would fall into the "necessity" category due to the pandemic, Covington & Burling LLP explain that this is often not the case due to a specific list of factors that employees are required to satisfy in order to fit into that category.
Other states are applying similar rules, including Connecticut, Delaware and Pennsylvania.
Overall, the taxation of remote workers continues to create tax complications across the U.S., and as the pandemic continues, the tax implications will be felt by businesses and remote workers across the country.
To stay on top of your tax obligations due to remote workers, or any other tax situations, please contact us today. We're happy to clarify any multi-state tax issues you're trying to navigate.
Post-Brexit Issues in the EU and UK
In our multistate practice, we often receive questions about doing business internationally. It’s important, in that case, to have a good referral partner for VAT and GST work, which Miles Consulting does not specialize in. We are pleased to feature another article this week by our colleague Richard Barrett of Vatglobal, describing the new landscape of doing business in a post-Brexit world. In our recent blog, we highlighted the Brexit transition period has now come to end, and the UK is no longer part of the EU for VAT purposes. This change brings with it a host of changes to the VAT treatment of supplies, many of which will directly impact US businesses who engage in transactions in the UK and EU. Below, Richard has highlighted some of the key areas that have changed.
Note that the vast majority of changes relate to the sale of goods, but there are subtle changes involving services which may also require consideration. Please find his contact information below. Thanks Richard!
Below, we have highlighted some of the key areas that have changed.
Note that the vast majority of changes relate to the sale of goods, but there are subtle changes involving services which may also require consideration.
What You Need To Know About Brexit As A Retailer In The US
We're now several weeks out from the end of the "transition period" for the withdrawal of the U.K. from the European Union (EU), a process collectively known as "Brexit." The economic impacts of Brexit will be largely determined by the EU-UK Trade and Cooperation Agreement and will likely be felt for years to come.
While this is all happening an ocean away, it will still have a significant impact on retailers in the U.S. that make sales to customers in the U.K. Keep reading to find out how!
The U.K. originally joined the predecessor of the EU, the European Economic Community, in 1973. Skepticism regarding the membership has been around almost right from the start, however. The first national referendum on whether the U.K. should remain a member actually took place in 1975.
More recently, Brexit has been making headlines since the historic 2016 United Kingdom European Union membership referendum, when 51.9 percent of voters who turned out for the referendum voted to leave the EU. Since then, lawmakers have had the arduous task of planning the U.K.'s exit and how to deal with the immediate fallout.
The official exit of the U.K. from the EU took place on Jan. 31, 2020, with the U.K. entering a transitional period where trade, travel and freedom of movement remained largely unchanged.
At the end of 2020, the exit was finalized and the transition period ended.
Now that we've established the background of Brexit, let's discuss how it will impact U.S. retailers making sales into the U.K.
According to Avalara, the main change comes from the elimination of Low-Value Consignment Relief (LVCR). Before Brexit, imported goods valued at or below £15 were exempt from value-added tax (VAT). Starting Jan. 1, 2021, all imports (with the exception of some specific exempt goods or services) are subject to import VAT.
There are three VAT rates in the U.K.: 20 percent, 5 percent and 0 percent. Which one applies is based on the type of good or service being imported into the country. Certain reliefs may also be available depending on the nature of goods.
All businesses who sell goods and services that are not exempt within the U.K., even those that are in the 0 percent category, are required to register for U.K. VAT. In addition, businesses will be required to charge and collect U.K. sales VAT at checkout on certain transactions, whereas previously the tax would be paid as import VAT at the U.K. border.
Another area of consideration for U.S. businesses is that marketplace facilitators will be required to collect and remit U.K. VAT at checkout if the shipments are less than £135.
Similar VAT changes will also go into effect in the 27 other member states of the EU in July 2021, creating additional complications for U.S. retailers.
In addition to goods that are imported directly into the U.K., U.S. businesses who transact in goods between the U.K. and EU and vice versa will also have a number of new VAT considerations and processes to implement within their business. Indeed, careful planning and structuring will be vital to avoid unnecessary costs and delays to products reaching their destination.
If you have questions regarding U.K. VAT compliance, the impacts of Brexit on U.S. retailers or any other tax questions, please contact us today. We're happy to clarify any multi-state tax issues you're trying to navigate.
The changing rules arising as a result of Brexit are complex, and can cause real issues to businesses if not fully considered. Stay tuned for further technical articles by our VAT colleague Richard Barrett, which will assist you in navigating the requirements for your business.
Are You Ready For Sales Tax Crackdowns?
There isn't a tax professional around that would say 2020 was a normal year for online sales tax developments. Between the pandemic and continuing change spurred on by South Dakota v. Wayfair (2018), 2020 was a tumultuous year to say the least.
However, as we settle into 2021 and state legislative sessions loom on the horizon, it's safe to say 2021 may not be the calm after the storm many were hoping for.
Beyond the general chaos created by the pandemic, it also resulted in budget deficits for states across the nation. As a result, lawmakers are looking for revenue wherever it can be found, and as we've previously discussed, online sales tax could be the route many zero in on.
This is largely because revenue from online sales tax, especially in states that have implemented Wayfair-related legislation, has offered a steady source of income during the pandemic. Online shopping has skyrocketed thanks to stay-at-home orders and general health concerns, and this has been a saving grace for many states.
We've already seen some legislative changes that can be attributed to the pandemic, but one of the areas we anticipate seeing even more change in is increased enforcement of various online sales tax requirements, including tax remittance for marketplace sellers and unregistered sellers.
A recent report from Avalara shares that, "remote sales tax collections have been surprisingly resilient during the pandemic, so states in need of more tax revenue may turn a scrutinizing eye on unregistered out-of-state sellers making sales in the state."
Marketplace sellers may also face scrutiny for past sales tax based on inventory stored in warehouses and fulfillment centers owned by marketplaces, according to the report.
Another consideration to keep in mind are the tools used by states to ensure sales tax compliance. These days, states are utilizing various technologically advanced methods to root out sellers that aren't complying, such as data mining tools, artificial intelligence or algorithms. With these tools, and the motivation that comes from large state budget deficits, the smallest blip to sales tax compliance can be enough to catch the attention of tax investigators.
During times of economic difficulty, as we're seeing now due to the pandemic, the last thing a business needs is an audit or financial investigation. To keep your business safe, ensuring you're on top of your tax obligations is a must.
This is more difficult when change is coming as fast as it is now, but ensuring tax compliance can be made easier with a partner like Miles Consulting Group. We can help you evaluate your tax situation to determine the best compliance solution for you, as well as advise you on your tax obligations.
If you have questions regarding online sales tax compliance, or other state tax questions, please contact us today. We're happy to clarify any multi-state tax issues you're trying to navigate.
