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.
Focus on Oklahoma
This month brings us to the Sooner State of Oklahoma. The state’s nickname, “The Sooner State,” is in reference to the non-native settlers who stated their claims on land before the official opening date of lands in the western Oklahoma Territory.
The state is in the Gulf of Mexico watershed, generally sloping from the high plains of its western boundary to the low wetlands of its southeastern boundary. With small mountain ranges, prairies, mesas and eastern forests, most of the state lies in the Great Plains, Cross Timbers, and the U.S. Interior Highlands, a region prone to severe weather.
What You Need To Know About Important Illinois Tax Updates
As we begin 2021 and approach the legislative season, it's clear there will be numerous changes that will impact tax compliance. This is spurred on by both the pandemic's economic fallout and changes necessitated by our increasingly digital economy.
In this article, we examine several updates regarding tax compliance in Illinois and what they mean for any retailer doing business in the state.
After the 2018 Wayfair decision, Illinois enacted marketplace facilitation legislation, following in the footsteps of many other states. However, unlike other states, this legislation is creating friction with other pieces of tax law specific to Illinois.
These taxes, the Illinois Retailers' Occupation Tax (ROT) and the Use Tax (UT), were in place before the implementation of marketplace facilitation legislation in January 2020. Customers pay UT to retailers, who then remit it to the Illinois Department of Revenue (DOR), unless the retailer has already remitted ROT on the gross receipts from the same sale, as explained by Bloomberg Tax. This means that even though the sale triggers both taxes, the retailer is only required to remit one.
However, now that marketplace facilitation has entered the playing field, it's creating compliance issues. The root of the issue is that while UT has been imposed on marketplace facilitators, ROT was not, and this creates problems when specific marketplace transactions create ROT liability for marketplace sellers, even though the marketplace has already collected and remitted the UT on the same sales. This destroys the balance of the ROT and UT system that existed prior to January 2020.
Luckily, the issue is specific to sales made in 2020 as starting in January 2021, marketplace facilitators are required to remit ROT on behalf of themselves and their marketplace sellers, with credit given for UT liabilities. That being said, there is still no solution that resolves the 2020 issue.
Readers of our blog are familiar with the City of Chicago's effective tax on software-as-a-service(SaaS) transactions for companies making sales into the city in the form of its Personal Property Lease Transaction Tax. While not a sales tax, it sure feels like one, and must be collected by the companies making the sale. For several years, this tax was at the rate of 5.25%, but has been steadily creeping up. On Jan 1, 2020, the rate increased to 7.25% and as of Jan 1, 2021, it is now at 9%.
Starting January 2021, remote wineries with an Illinois Winery Shipper's License are required to collect sales tax on sales made in the state. Specifically, Illinois' economic nexus, which is triggered by $100,000 in gross receipts from sales of tangible personal property or 200 separate transactions of tangible personal property, will now apply to out-state-wineries that do not have a physical presence in the state.
Remote wineries will also be required to collect and remit state and local ROT.
The Illinois DOR has stated that remote wineries holding a Winery Shipper's License are the responsible party for ensuring tax requirements are met, even if the winery is using a third-party provider to ship the wine.
If you have questions regarding your obligations regarding sales tax remittance, 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.
Happy Holidays from Miles Consulting!
Happy Holidays to our readers! Thank you for your continued interest in our state tax updates and technical news via this blog. And thank you for your calls and inquiries throughout 2020 about all things related to state sales tax issues.
As we all get ready to slow down for the next couple of weeks and go headlong into this very strange, one-of-a-kind (we hope!) holiday season, we wanted to offer some perspective on the year from our vantage point.
Will Massachusetts Speed Up Sales Tax Remittance?
The pandemic has spurred on a number of sales tax changes over the last 10 months, many of them in regards to economic nexus or other Wayfair-related legislation. However, in Massachusetts, lawmakers are looking at sales tax remittance instead. More specifically, speeding up the remittance process.
This doesn't come as a huge surprise as Massachusetts Governor Charlie Baker has introduced a number of similar plans since taking office in 2015, but this is the first one that may be approved.
Like many other states, sales tax in Massachusetts is collected over the course of a month and then remitted to the state during the following month, usually towards the end. This means that it can take upwards of 50 days for tax revenue to be available to states.
In a time when many states are facing steep budget deficits, it's not surprising lawmakers would push to get sales tax monies into state hands as fast as possible.
Gov. Baker's plan was introduced in the governor's revised Fiscal Year 2021 (FY21) budget recommendation. If approved, it would be implemented in several phases and would initially only apply to approx. 5 percent of Massachusetts businesses, according to the budget executive summary.
In phase one, which would begin in FY21, impacted businesses would be required to facilitate sales tax remittance from the first three weeks of each month during the final week of that same month. The taxes from the final week would carry over into the next month. Reconciliation of the filing would be due the following month.
This first phase would last three years and the funds would go towards mitigating the economic impacts of the pandemic, the Massachusetts Bay Transportation Authority and the Massachusetts School Building Authority.
The second phase, which would begin in 2024, would require all retailers and credit card processors to capture sales tax at the time of purchase. The tax collected would be remitted daily.
While Gov. Baker's plan is ambitious, and there are certainly opponents of it, we are anticipating some form of phase one to be approved. States are eager to gain access to sales tax funds faster, and the pandemic has only increased this desire. We've also seen lawmakers in other states push similar proposals regarding sales tax remittance, and should Gov. Baker's plan be approved, it's likely other states will follow suit.
That said, phase two, which would require same day remittance, is a harder sell. Opponents have raised concerns regarding the need for expensive overhauls to payment systems and the possibility that phase two of the plan could increase economic barriers for new small business owners, among other potential concerns.
We'll keep a close eye on this situation as it develops and will be sharing updates as we see them come through.
If you have questions regarding your obligations regarding sales tax remittance, 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.
Focus on Maine
This month we travel up the eastern seaboard to the Pine Tree State of Maine. Maine is the northeasternmost state in the contiguous United States. It is known for its jagged rocky coastline, low, rolling mountains, heavily forested interior, picturesque waterways, and its seafood cuisine, especially clams and lobster.
Maine was part of the Commonwealth of Massachusetts until 1820 when it voted to secede from Massachusetts to become a separate state. There is no definitive explanation for the origin of the name “Maine,” but the most likely explanation is that early settlers named it after the former province of Maine in France.
What To Know About Certain Tax Obligations In California
Are you a remote seller making sales into California through a marketplace seller like Amazon? Do you have inventory within the state?
What about remote workers? Do you have any employees that are now working from home across state lines?
If you answered yes to any of the above questions, I encourage you to keep reading!
California's Franchise Tax Board (FTB) recently sent out notices to online merchants demanding income tax returns, part of a larger effort to collect taxes from remote sellers with inventory within the state. While in-state businesses have received similar notices for a number of years, the recent focus on out-of-state retailers may trace back to the 2018 Wayfair decision and the implementation, and enforcement of, Wayfair-related legislation within California.
Unlike remote sellers that make sales independently, and as a result, manage their own inventory, marketplace sellers may find these income tax obligations to be an unpleasant surprise. This includes retailers who make sales through Amazon's Fulfilled By Amazon (FBA) platform. Amazon is notorious for moving inventory without informing sellers, sometimes even into new states without the seller's knowledge.
As a result, marketplace sellers may be faced with new tax obligations in California they were previously unaware of if they meet certain annual thresholds.
While this may seem like an unfair reach by the FTB, we remind our readers that having inventory in the state (even if you didn't necessarily know you had inventory in CA), constitutes physical presence - and creates nexus for both sales tax and income tax purposes. It always has. The difference is the FBA program has now presented taxpayers with a challenge they weren't expecting. The rub is many participants in the FBA program don't know (or didn't previously know), where exactly their inventory was being stored, and likely didn't realize that it created a physical presence for them in California. Or in any other state Amazon stored the seller's inventory. California is getting some headlines about this now, but stay tuned for this shoe to drop in other states as well.
On the other hand, despite the crackdown on marketplace sellers, California has shown leniency when it comes to tax obligations created by remote workers. Of course, this is specific to remote workers who have been forced to shelter in place due to the pandemic, but the recent guidance from the FTB has been a relief to many companies that were unsure how the extended need for remote workforces would impact tax obligations.
As stated on the FTB website, "California will not treat an out-of-state corporation whose only connection to California is the presence of an employee who is currently teleworking in California due to Executive Order N-33-20 as being actively engaged in a transaction for the purposes of financial or pecuniary gain or profit."
This means remote workers alone will not result in a business being classified as "doing business" within the state. However, if a business has other ties to California, which already meet the state's minimum thresholds for property, payroll or sales, it will be considered to be conducting business within the state.
If you have questions regarding your tax liability in California, 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.
It's the Season to be Thankful!
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and healthy Thanksgiving!
Many of you visit our blog for insightful articles about state tax matters. However this week, we’d like to stop for a moment and reflect on the past year and on the things that we have to be thankful for.
This year has certainly thrown us a few curve balls. With the onslaught of the coronavirus pandemic, life has changed drastically as many people work from home and students have switched to distance learning. At Miles Consulting, our team members are dealing with the issues of working from home, home schooling children, visiting grand-kids online, and canceling vacations, and other outings. But, thankfully, most of us aren’t dealing with “front line” issues. And we are very thankful for the essential workers in hospitals, doctors’ offices, grocery stores and other places that enable us to carry on with daily life, so that it can seem somewhat normal.