Compliance Counts: Why Your Business Cannot Afford to Ignore Sales Tax

A little bit of housekeeping before we get going. We want this to be as interactive as possible. The way that we're going to do that is through the chat and the Q&A. So if you look at the bottom of your Zoom, you'll see there are two options. One is a chat where you can chat with us. The other, and probably preferred method of asking questions, is to use the Q&A.

0:36 Stephen Brown

We have a number of our experts here with us, and we will answer the questions either live during the conversation, or if it's more of a one-off question, one of our experts will try and answer it there. So feel free to jump in there. I'm going to keep the poll open while we're going, feel free to answer it if you could.

1:00 Stephen Brown

Let's do a little bit of introduction. I am Stephen Brown. I am actually the COO of LedgerGurus, but I will be moderating today's webinar.

Today I have Lauren Maillard, who is over our services team and helped build and scale our sales tax team. We also have some sales tax experts in the background, Valerie and Amanda, who you may see or hear from. They are leading our sales tax team currently.

1:36 Stephen Brown

With that, let's talk about the agenda.

So as an intro, we feel like right now it's probably one of the most active periods of sales tax, the most changes to sales tax that we've seen since 2018. So we're going to talk a little bit about what the catalyst of a lot of multi-state tax changes were, which is the overview of the Wayfair decision, some compliance expectations, some behaviours that we're seeing this year that are different that everyone should be aware of, and then some next steps that you can consider.

With that we'll go ahead and jump in. Lauren, take it away.

2:19 Lauren Maillard

Yeah, well, let's start at the very beginning. We're all here because of the Wayfair decision. That was a 2018 Supreme Court decision that allows for states to require online sellers to collect and remit sales tax. Previously, sellers only had the requirement if there was a physical presence.

2:41 Lauren Maillard

And the Wayfair decision has been adopted by the states over time. The states have legislated the requirements, and for most states it was $100,000 in sales or 200 transactions.

All of the states have now adopted the law. It took a couple of years, and during those years reconciliations were very important, because the state effective dates were actually being added every month, and not every channel was actually effectively collecting sales tax.

3:11 Lauren Maillard

And Missouri is the very last state to actually implement it, and that came into effect January 2023. So it's definitely something that affects all of the states that have a sales tax.

3:31 How states are enforcing compliance

Lauren Maillard

So the current compliance expectations. Initially there was leniency, but that initial leniency has faded. The states weren't questioning businesses that were registering for sales tax. They were just really happy that sellers were actually coming and getting registered, collecting and remitting sales tax.

But we are a full six years into this, and full compliance is being expected. The states are getting very serious about collecting sales tax, and they're looking for revenue, and so they're coming after sellers.

4:04 Lauren Maillard

And so how are the states enforcing compliance? We've seen multiple things. The states are buying lists, they're working with sales channels, they have multi-state agreements where they're working together to collect information and share that information.

4:30 Lauren Maillard

Let me drill down on some of these points. So they're buying lists. If you're not aware, you can go out and buy a list of businesses. They're easy to buy.

4:43 Stephen Brown

Working with sales channels. Talk about what we know, like Amazon. What do we know that they're doing with Amazon, for example?

4:49 Lauren Maillard

They have contacts with Amazon. They will go back and forth. It's not hard for a state that's working with Amazon to ask for information, and Amazon's going to help them out. So they'll say, give me all your third party sellers that have sold through you in my state. Is that the kind of, I don't know if that's the exact question, but yeah, pretty close.

5:14 Stephen Brown

We do know that they are doing that kind of stuff with some of the big marketplaces.

5:20 Lauren Maillard

Yeah, they are. And the most aggressive state that we're seeing is Illinois. And Illinois is focusing on the period from the Wayfair decision to when the seller is registered. And we've got multiple clients that are under audit, and that audit period is going all the way back to 2018. So it's kind of like they're done playing Mr Nice Guy, and now they're expecting everyone to play by the rules.

5:55 Lauren Maillard

So Illinois, that's one of the most aggressive states. We've got other states, and they're focusing on finding sellers that they think have crossed the nexus threshold.

Washington's another aggressive state. Washington has sent surveys out to businesses that aren't registered in Washington. So they're finding sellers and they're going out and sending these surveys. Washington, their penalties are 39%. And you also have to consider that they have their B&O tax. So that's another state that's really enforcing compliance.

6:28 Stephen Brown

I've got a question. I think I know the answer, but I just want to confirm. What about Shopify? Do we know if Shopify is providing any sort of information to states?

6:42 Lauren Maillard

I can't confirm it, but we're pretty sure about it.

6:53 Stephen Brown

I think the big difference with Shopify and a Walmart or an Amazon is they are not the marketplace, but they're providing basically a marketplace solution.

That said, we know that Shopify facilitates the calculation and collection of sales tax. So if I was a state, you probably would want to have a relationship with Shopify. And in the future, Shopify will probably become a marketplace. There's legislation that's being worked out, and it would make everyone's life easier if they were a marketplace. Right now they're not, but we'll see what happens there.

7:47 Business activity questionnaires

Lauren Maillard

And so we've got business activity questionnaires. These are the questionnaires that the states are starting to send out. This is what we're seeing from Illinois, this is what we're seeing from Washington.

And the states are not content with simply collecting taxes and moving forward. They're really wanting to recoup funds. Thinking about where the economy is, who better for states to collect funds from than people who don't live in their states? So they're really going for those out of state sellers.

8:19 Lauren Maillard

And we are seeing both registered and non-registered sellers receiving this. So you could be out there and they're going to find you.

8:33 Stephen Brown

So we've got our next poll. We'd love participation on this, which is, have you received one of these questionnaires? They have different names in different states. We see Illinois doing this a lot, there are other states that are doing it. Really curious, and we'll share the results once you have answered.

Obviously I think if you're not a brand or working in a brand, and from our first question there's quite a diverse audience here, that may skew the results some. But I'm going to let this questionnaire run for a minute or two and then share the results, so we can see how many people have received an activity questionnaire. I listed Illinois, Washington, Texas, but feel free, if you're getting one of these questionnaires, to answer yes if it's from another state.

9:20 Stephen Brown

The big thing, and we have a sample of what this looks like, this is just page one. These are fairly extensive. They are asking, what are some of the questions that we're seeing being asked, Lauren, beyond what we have here in the screenshot?

9:39 Lauren Maillard

That's a question for Amanda actually. Amanda, do you want to?

9:52 Amanda

Yeah, I can talk more about this.

The questionnaires, they're really touching base on, it is very similar to what's being shown on the screenshot. They want to know if you have any physical presence. They're asking you about past sales history to see if, you know, if you don't have any physical presence, do you have economic nexus there. And they are asking for three to four years of information when you fill these out.

10:27 Stephen Brown

Okay, so they're pretty intensive. The states are trying to figure out if there's some money that you should have given them.

What happens once we reply to those questionnaires? And I might need to lean on you, Amanda. What do we see happening when you reply to these questionnaires? What are some of the outcomes?

11:02 Amanda

Yeah, so the state's going to go through the information, and if they see that there is some type of presence in the state, then they're going to start an audit. And they're going to usually take the sample size of what they've asked for, those three years, and look at it. And then sometimes they'll capture more years than what they've asked for for the last three years.

But you really go into an audit, and if you haven't registered, you're going to need to register.

11:46 Stephen Brown

And this is a good insight from Jim. Jim said Missouri didn't send a questionnaire, they just sent an amount due based on sales data they received from marketplaces. So here's your bill.

11:59 Lauren Maillard

Wow. We've heard of that before. We've had a couple of clients where that's happened too.

12:05 Stephen Brown

So you've got one more question, Lauren, before we move on, and then I'm going to share the results.

So it looks like from our results, we had about three quarters of you that participated. We're sad for those who didn't. Again, do not consider this to be a statistically significant sample, but just from this group of 31 people who responded, we had about 6% that have seen these.

12:37 Stephen Brown

Another question is, what's our definition of a marketplace and SaaS in terms of sales tax?

I'm going to try and take this. So a marketplace would be something like an Amazon, a walmart.com, a Costco. Anybody where you are selling your products through their market.

12:59 Stephen Brown

Versus, I'm not quite sure [unclear] by SaaS, but when I think about SaaS I would think like a tool like Shopify, WooCommerce, BigCommerce, where you basically have your own store and you're using the SaaS software to create your own little market to the customer.

13:18 Stephen Brown

In either case there is sales tax liability, and there are different ways that sales tax is handled in marketplaces. In some cases the marketplace has become what's known as a marketplace facilitator, where they are facilitating the collection of sales tax. But they are only looking at the sales tax in their marketplace. And if you're selling in different places, you have to consider it as a whole as a seller. And you don't want to rely on them entirely, because they might screw you up.

13:50 Lauren Maillard

Yeah, you're still responsible. Even though they're remitting it to the state, you're still responsible if they screw up.

13:56 Stephen Brown

So we've seen Washington go after an Amazon seller because of a mistake Amazon had actually made.

And here's another good question. I think we're going to get a little bit into nexus, but do you have to use Amazon and Walmart sales to determine nexus if you are also using Shopify?

14:18 Lauren Maillard

Yeah, that's a really good question. And there are, I think, five or six states where you do.

And that's where determining nexus, and we'll talk about it in just a minute, determining nexus can be really complicated. Because depending on the state, the state will take into account gross sales, net sales, marketplace facilitators, for determining if you've hit their sales threshold. And so that's where you're going to want our expertise in helping you to do a nexus analysis.

14:52 Option one: register and back file

Lauren Maillard

All right, let's talk about next steps when you get one of these yucky surveys.

So there are really two big broad steps that you can take in dealing with sales tax when you have one of these questionnaires coming up, or you're just really feeling like you need to get compliant.

15:06 Lauren Maillard

First option, register with or without back filings. And what that really means is that you're putting an effective date on for the past, and then you're responsible to pay out of pocket for all of that sales tax that you didn't collect.

So you're telling the state, hey, two years ago I had the obligation, I had nexus. And they're going to give you a filing frequency, and you're going to have to go back and do all of those back filings and make all of those sales tax payments. So you're out of pocket.

15:43 Lauren Maillard

And the second option is to do a VDA, so that's a voluntary disclosure agreement. And we'll talk about that in just a second.

15:48 Stephen Brown

I have a really good question around that. I think everybody should hear it. Mike, and Valerie's typing an answer, but I want to bring this up as well.

Illinois is auditing us. They've asked for state by state sales data for our entire business. So they're not just asking for what's going on in Illinois, they're asking for all states. The reason is they want to make sure our federal tax return of total sales adds up to our total sales. It does not seem right to me for them to request sales for all 50 states. Insights on this?

16:23 Stephen Brown

We've had this conversation internally as well, because we agree, Mike. This does not feel right. So, experts, they're asking for more data than their own state. What is the thinking that we've had around this approach, and what are we hearing from other experts on this?

16:47 Lauren Maillard

Okay, I'll take a stab at it, Valerie, and then you can chime in here.

It starts to get tricky, because we're kind of teeter tottering on legal advice, and there really hasn't been much precedence. Now, what we do know is that there are regional multi-state agreements where the states are coming together and saying, hey, you do this, you find this out, we're going to share information.

17:17 Lauren Maillard

And so we have had clients who, either they're going through an audit or there's a questionnaire that comes to them, the state's asking for all of this information from the other states.

And at this moment we're telling clients to do what they feel the most comfortable with. Because you can give the state that information, and it's very possible that they're going to turn around and give it to another state that you have nexus in. And that's not something that we really wanted to worry about, unless that's part of your sales tax strategy.

17:52 Lauren Maillard

And so we are actually reaching out and talking to other experts as to what they're seeing, and what the response is back from the state if we're not giving that information. We have had clients who have not given that information, but I think it's too soon to tell what the repercussions are of them deciding not to give that information to the state.

Valerie, what would you add to that?

18:18 Valerie

Yeah, no, that's exactly it. So we've been doing some research, and based on the multi-state tax compliance agency, they are sharing information. And what we've seen is that it'll trigger a questionnaire from one of those other states.

But Mike, I understand your concern, and we get this question over and over. What right does Illinois really have to ask on behalf of the other states? It is unfortunate.

18:38 Stephen Brown

Well, and even if there is an agreement, I'd like to actually understand how legally enforceable it is. So you have the question of, is it legally enforceable? But then there's also the practical part of, are the states going to get nasty because you didn't help them out? And I think that's a real possibility, but we just haven't seen the repercussions yet.

19:03 Stephen Brown

Now, we've got some questions coming in fast and furious. A lot of these we are going to be answering in upcoming content. So Tiffany's like, what is nexus? We're going to talk about what nexus is, so hold tight, Tiffany, we'll be talking about that. And then Julie about city and state taxes. We'll probably talk about the dynamics of jurisdictions in a little bit, right, Lauren?

19:29 Lauren Maillard

Yeah, we can. So hold tight, Tiffany and Julie, and we'll get into your questions. Let's get through this on how to handle these situations.

19:50 Lauren Maillard

So option one, you can make the choice to register and move forward. So you could go ahead and say, hey, I need to get compliant, it's on my to-do list, my business is doing well. And you could get registered and you could put August 22nd and just go ahead.

20:01 Lauren Maillard

But in a lot of cases you're going to need to make the decision to register and go back and pay taxes. And this can be a really good decision if your exposure is minimal.

And so to remind you guys, exposure is the amount of sales tax that you were supposed to collect, plus penalties and interest. Penalties can be a late penalty, it can be a late payment penalty. And like we said with Washington, we're seeing up to 39%, we're seeing 4% compounded monthly. I mean, we're seeing amounts that are just absolutely huge and can really break a small business owner. It's really unfortunate when we see what the states can do when it comes to penalties.

20:50 Lauren Maillard

And so just remember that sometimes the best resolution is to register and pay back taxes. And this would be the case if your exposure is really small. So if you're a newer business owner, or your sales aren't too high, this is a really good option. Go ahead and get registered, put that effective date back however far you need to, and get compliant. And you would want to do this because then the risk is removed and you're compliant.

21:26 Lauren Maillard

So if you had nexus, and I'll just answer it right here, nexus is an obligation to collect and remit sales tax. And that obligation is met in two different ways.

It can be by physical presence, and that's what most people are familiar with. So if you have a physical store, inventory, employees, or even in some cases if your inventory passes through that state, then you have an obligation to collect and remit sales tax to that state. So that is physical nexus.

21:59 Lauren Maillard

And economic nexus is the obligation to collect and remit sales tax because there's a lot of activity going into that state. And so that is what Wayfair changed.

If you remember back in the early 2000s, people would buy so much online because you got a 6% discount, because the online retailers weren't collecting sales tax. And that's where online sales exploded, and the states are really feeling the hit of the sales tax not coming in, because there's not as much sales happening in brick and mortar stores.

22:44 Lauren Maillard

So getting back to registering and paying your back taxes. You have the obligation when you hit nexus, and you kind of signify when you feel like you have that nexus to the states by the date that you register for.

So if you go ahead and register today, you're saying, hey state, I have nexus. On this day going forward I'm going to be your agent, I'm going to collect sales tax, I'm going to remit sales tax to you.

23:11 Lauren Maillard

If you register and you say, hey, I had nexus a couple of years ago, the state's going to come back and say, okay, well, I want my sales tax. And so it might not make sense, and we've got another option for you.

But if you had nexus a month or two ago, I'd say go ahead, get your effective date, pay the sales tax that you were supposed to collect out of pocket, and then forget about it. It's crossed off your to-do list, you don't have to worry about sales tax, and you don't have the risk that that state is going to come back and charge you penalties and interest.

23:54 Lauren Maillard

Because those penalties and interest will just keep going and going and going. There's no limit right now for how far back they can go if you had physical nexus. And if you had economic nexus, they can go back till 2018.

24:07 Stephen Brown

Sorry, I think I went a little in depth. Let's go to the next slide, because I think there's some really good points that you're going to cover.

Because there's a challenge. One of the challenges, and this is on the second bullet, you go in, you owe $50 of sales tax to a state. Should I register? This is a big question that we get all the time. So Lauren, take us through the considerations of when to register and pay.

24:37 Lauren Maillard

So when to register. Sales tax compliance is a business decision.

Because if you are a smaller ecommerce seller, so I'm going to say between $1 and $5 million, you could very well have nexus in every state, but it could cost you quite a bit to actually be perfectly compliant. And once again, that means you'd be registered and remitting sales tax potentially monthly in each of those states. And so there's a cost for getting those filings done, for calculating the sales tax.

25:21 Lauren Maillard

And so you have to weigh the decision of how much does it cost to be compliant, and how much am I actually collecting?

And so here's the example that I use quite a bit. If you are selling 200 pencils in 200 transactions into a state, the state could come back and say, hey, you have nexus, you're supposed to register and remit sales tax. Well, sales tax on a pencil, we're talking about pennies of sales tax, where to get that sales tax return actually filed to the state costs you $100.

26:05 Lauren Maillard

So that's where you have to make a business decision and actually look at what your situation is. And that's where with sales tax you're going to want to talk to an expert who really understands what the penalties are going to be, which states are aggressive, and kind of help you come to a decision.

We never make the decision for our clients where they register. We always say, here's exposure, here are things that we recommend, you go ahead and make the business decision on where to register.

26:37 Stephen Brown

Because to that point, the penalties and interest on a really low balance could be less than the cost of doing these returns over a long period of time. So there's a trade-off.

26:51 Stephen Brown

Now the one thing I'll put in here, and I don't think we have it in our slides, because it happens sometimes. Do not, let me say this, I'm going to say this at least three times. Do not collect sales tax if you're not registered in a state. Do not collect sales tax if you're not registered in a state. Do not collect sales tax if you're not.

27:04 Lauren Maillard

Stephen, they need to understand what that means. So what that means is, do not go into Shopify and toggle on that you want to collect sales tax everywhere. Do not do that. You register first, and then when you have your sales tax registration, which is your license, then go in and turn it on.

27:31 Lauren Maillard

Because what happens if you turn it on everywhere? If you have collected sales tax, you must remit that to the state.

And so we have had clients who have turned it on for 45 jurisdictions. They did not have nexus in more than one. So you've got 44 different states where they're collecting and they didn't have to, and now they've got thousands of dollars worth of compliance to either remit the sales tax, or you do have the option of returning it to the buyers, but that can be very complicated and very time consuming. So don't.

28:17 Stephen Brown

Yeah, that's the biggest mistake that we are seeing at LedgerGurus, people who have turned on the tax settings everywhere and now owe hundreds of thousands of dollars, and they're going to have to pay sales tax everywhere when they actually didn't have the obligation. It can get just so incredibly complicated. So yeah, thanks Stephen for bringing that.

28:37 Stephen Brown

All right, let's keep going. There are so many nexus questions. Let's get to a point where we can talk about nexus. Hang tight everybody, we're going to talk about a lot of your questions that are related to nexus here in a bit.

28:47 Option two: voluntary disclosure agreements

Lauren Maillard

Okay, so the other option is you can do a voluntary disclosure agreement.

And so a voluntary disclosure agreement is offered by states as a program where businesses voluntarily come forward and they say, hey, I had nexus, I want to get compliant. And with these programs there are reduced penalties, there's a limited lookback period, and most interestingly is there is confidentiality that happens.

29:24 Lauren Maillard

So what happens with a VDA is you go to a third party and they will actually be your agent with the state. Go to the state and say, hey, I've got a business, they had nexus, here are all of the transactions. What can we do? What kind of a payment plan can we work out? How can we reduce the penalties? And then you can make a decision of whether or not you want to go ahead and do a VDA.

29:47 Lauren Maillard

So a VDA will reduce your past exposure. VDAs should be considered everywhere a business has physical nexus. This is a really important point. If you had a brick and mortar store and you have not been collecting sales tax, you really should think about doing a VDA, because there's no limitation.

30:10 Lauren Maillard

Economic nexus doesn't predate the Wayfair decision, so we know that if you had economic nexus it's not going to go past 2018. And what we're seeing is the states are really focusing on 2021 and 2022. So yeah, a VDA can be a very valuable tool in becoming compliant.

30:34 Lauren Maillard

When to consider a VDA. If your sales tax exposure is high. So once again, sales tax exposure, what you should have collected plus penalties plus your interest. And you're going to want to really consider it if the sales tax penalty is more than the professional fees charged for the VDA.

31:00 Lauren Maillard

So in explaining this, the states don't waive interest. That's something that you're going to have to pay. But they will waive penalties. And what we're seeing other firms or other organisations charge for a VDA, it can range between about $5,000 to $10,000. So if your penalty is less than that, go ahead, pay the penalty, and I wouldn't go ahead and do a VDA.

31:22 Lauren Maillard

And then the third point here, if your business has collected sales tax in a state but has not remitted that. And that just goes back to, if you collect sales tax you have a legal obligation to remit it. So there's no good option of not registering. You need to get registered, you need to get compliant one way or another.

31:47 Lauren Maillard

Here are some other points to consider when you're thinking about sales tax.

The first point here is review your nexus footprint. We recommend that a business that is growing rapidly really review their nexus every three months, if it's very quickly. For most businesses it can be every year, every year and a half, or two years, depending if your sales are kind of keeping steady. Or if you're noticing that you're selling quite a bit into one state, then it might be interesting to do a nexus analysis for just that state.

32:55 Nexus explained

Stephen Brown

Can we stop here for a second? Kelley's going to hate it, but there are so many nexus questions that I whipped together a really ugly nexus slide, and I just want to talk about nexus, because I see a ton of questions. What is nexus?

So I'm just going to share my really ugly slide so that we can get on the same page.

33:17 Stephen Brown

Nexus is when you have some sort of a presence in a location. And the big thing about Wayfair, before Wayfair in 2018, it was usually based on some sort of a physical presence. Either you had an office there, you had product that was being warehoused in that state, you had employees. This is a big thing with remote work. If you have an employee in a state, you may have nexus.

33:47 Stephen Brown

And so before 2018 and the Supreme Court decision for Wayfair, that was primarily how nexus was happening. And the warehousing was starting to cause a lot of problems, especially if you use Amazon. Your inventory with FBA could create a lot more presence than you thought. It wasn't just your 3PL.

34:09 Stephen Brown

With the Wayfair decision, they introduced this concept of economic nexus. And a lot of it's not the same in every state. We've got a really great download, Kelley can find it and put it in the chat, that talks about how economic nexus looks. Or maybe it's a blog article, I don't know, Kelley, you could find it.

But they basically set some thresholds, and states started creating economic thresholds either by the number of orders or by the amount of sales in a time period. And that changed everything and made sales tax a nightmare for all of us.

34:46 Stephen Brown

So understanding nexus is a really important thing. And so I've got a bunch of questions for you, Lauren, while we're looking at my ugly slide. And while I'm doing that, I'm also going to launch a poll, when's the last time you did a study?

34:59 Stephen Brown

So one of them is around, hey, Meta collects city sales tax as well as state sales tax. Are states forcing the sellers to pay sales tax for cities too?

I'll try and take this one. The short answer is the sales tax is usually calculated at multiple levels. There's the state level, the city level, sometimes county level. Sometimes, Lauren, what other kind of weird jurisdictions are there?

35:24 Lauren Maillard

In California, at the district level. And what's crazy with that is that in California there are different nexus requirements for the district level and for the city level. So it can become really complicated there.

35:37 Stephen Brown

And that all rolls up into a rate based on the address that you're being sold to. Now the state acts as the agent for all of those jurisdictions, is that correct, Lauren?

35:50 Lauren Maillard

That is correct in most cases. We have home rule jurisdictions. Colorado is a state that allows this, where you have small jurisdictions where they are actually administering sales tax on their own. So they actually have their own sales tax return that you have to fill out and remit to them. So it can become very complicated. Most states, that is not an issue, it is administered at the state level.

36:21 Stephen Brown

It sucks. That's all I can say. This whole topic sucks.

36:28 Stephen Brown

Okay, some other nexus related questions. A business has an employee in the state but are not selling anything. Do they still need to register for sales tax and file zero every month?

Amanda looks like she's answering this, but let's say you have nexus in that state but you don't have any economic sales going on.

37:02 Amanda

So any physical presence, it is a business decision. I would recommend registering and filing. It's going to be a zero return, but you do have a physical presence in that state.

37:26 Amanda

And I'll give an example for Texas. Texas, off the bat, if you don't file that zero return, if you file it a day late, you're hit with the $50 penalty, even though you don't owe anything. So just the fact that you didn't file that return and you should have.

37:46 Amanda

And also the states are going to find you, because you have an employee there. They're registered with the state, you're paying employment taxes, so the state will find you.

37:53 Stephen Brown

Yeah, so stupid. That's how I describe it.

If sales tax is registered in one state and selling on, okay, so if you're registered in one state but you're selling on Amazon, which hits all the states.

Okay, I'm having a hard time a little bit. So let's say you're only registered in one state, but Amazon is collecting and remitting in multiple states.

38:29 Lauren Maillard

I can give the broad advice. And this is where you're going to want to have a conversation, because what you're selling and how much you're selling is going to matter.

If you're an Amazon only seller, and let's say they're collecting all of your sales tax, but there are those states where they're going to say, if it's being collected on a marketplace facilitator, so on Amazon, then you don't need to consider it when you're deciding if you have nexus. But there are those handful of states where they're like, yeah, you still have nexus. And then the question goes to, is it a state like Texas where you should be doing a zero return?

39:16 Lauren Maillard

So it's very possible, if you're selling on Amazon, that you don't owe anything to the states. If you're only selling on Amazon you're not going to be responsible for collecting and remitting, but you're still actually responsible to file a return.

39:32 Stephen Brown

More yuck. Okay.

A couple others. What about a print on demand company? How would that affect nexus? So somebody's using something to do print on demand.

39:45 Lauren Maillard

Yeah, that becomes really complicated. What that really is, is it's a form of drop shipping. And with drop shipping you have to determine where you have nexus.

40:02 Lauren Maillard

And for the seller, this is the very broad guideline, and then I think reach out and ask other questions. But the broad guideline is the seller and the drop shipper are both creating nexus based on the number of transactions into a state, and they're counted individually. So the same transaction can create nexus for both the drop shipper and the seller. And so you have to determine what the nexus is for the seller.

40:43 Lauren Maillard

And in that comes the very big complication of certificates of exemption. Because if you have nexus, you have an obligation to collect sales tax or to collect an exemption certificate.

40:56 Stephen Brown

Yeah, and I kind of want to leave it at that, because we can go down really a black hole of questions with that.

41:01 Stephen Brown

Okay, some more nexus questions. If multiple owners, does that do the same as an employee? Like you have multiple owners in different states.

41:15 Lauren Maillard

It is, okay, so that's an easy one. Yes, you have nexus.

41:18 Stephen Brown

Company turned on sales tax for one state, they haven't launched the store, and they haven't registered with the state. What should they do? Should they quickly register?

41:28 Lauren Maillard

Yeah, quickly register. And you're going to put the effective date for the date that you started collecting.

41:38 Stephen Brown

That's an easy one. So yeah, make sure you register before you launch your store, you'll be good.

41:47 Stephen Brown

We have an online store in Florida, and we buy from a warehouse in Florida. We haven't gone live yet. When we do start selling out of state, how do we determine how much sales tax to collect?

That's a whole webinar unto itself. Every state has its rules by thresholds. So if you're getting started and everything's in one place, it's really easy. Register, collect in that state because you have nexus.

42:13 Stephen Brown

What's the general rule of thumb that we see?

42:20 Lauren Maillard

So is the question what the rate is that they should be collecting at, or when should they start collecting for out of state sales? And that's kind of a state by state basis.

But the general rule of thumb, if you're getting over $100,000 of sales into a state, you've probably hit nexus. That's the very broad. And it could be, depending on what your individual transaction amounts are. So if you're selling, once again going back to the pencil example, if you're selling lots of little pencils, you could potentially hit nexus very quickly, but then you wouldn't want to actually get registered because you'd only owe penalties, and it wouldn't make sense in that case.

43:11 Lauren Maillard

But another question that I kind of heard with that is, how do you determine the rate? And that's where, if you're on Shopify, Shopify will calculate rates for you, so you don't have to actually determine that.

There are 5,700 different sales tax rates that correspond with different jurisdictions. So not even the type of taxability. There can be different sales tax rates depending if it's a food product or if it's clothing or something. There are 5,700 different sales tax jurisdictions. So it can be very complicated, and that's where you're going to have a sales tax calculation engine, and Shopify can be that for you.

43:56 Stephen Brown

All right, we've got a lot of questions still. What I'm going to do, experts, Amanda, Valerie, if you could jump in on some of these questions.

Let's go back to you, Lauren, and we'll keep going, and then we'll try and hit some of these more questions. So we want to finish out this core content, because they're coming in fast and furious.

44:30 Stephen Brown

And thank you for answering our poll. So a nexus analysis is where you determine where you have liability, and it looks like we have quite a broad range of people when they've done their last analysis.

44:49 Lauren Maillard

But just finishing off the other things that you need to consider. You need to consider if what you're selling is taxable, if you need to collect exemption certificates or not, if you need to collect use tax.

Use tax is, if you have a product that you're selling and you decided to consume it, or to give it as a promotion to an influencer or something, you're responsible for actually paying tax on that. And so you pay that to your home state. So that's called use tax, because the state wants whoever is the final user of a product to have to pay the sales tax.

45:31 Lauren Maillard

Home rule jurisdictions, that's like Colorado. And then preparing for sales tax holidays. If you use Shopify, Shopify will actually adjust rates for you when it comes to sales tax holidays. And those are usually like back to school holidays, where for a day backpacks aren't taxable.

45:55 Stephen Brown

Now pause here for a second. I'm going to launch our last poll and I'm just going to leave it open. What Lauren just put out, you're like, what is that? We could go deeper on that. So if there are specific topics you would love us to do future webinars on, or other types of content, we'd love your feedback. I'm just going to leave that poll open, you can answer it as you see appropriate.

46:22 Retail delivery fees and next steps

Stephen Brown

Let's talk about something else that's new, that's starting to get infectious.

46:29 Lauren Maillard

Yeah, definitely. So this is just kind of terrible. So it's the retail delivery fee. So this is not a sales tax, it is a tax that the state, am I talking right now?

46:43 Stephen Brown

I am, you are.

46:45 Lauren Maillard

The states want their money, basically it comes down to that. And so they're taxing every transaction that's coming into their state.

And Colorado was the first one. It was 29 cents for every transaction that's going into a state and that's being delivered. You owe the state 29 cents, and so that's something that you're having to collect and remit to the state.

47:08 Lauren Maillard

Minnesota is the second one, and it's 50 cents on retail deliveries over $100, and there are a couple of small seller exemptions.

Retail delivery fees are something that we're going to see just more and more of. It's two states now, it's going to really reach out and quite a few more states are going to be following.

47:35 Stephen Brown

Yeah, so we expect that to expand, that terrible trend. And Lauren said it right, they're calling it, oh, it's not a tax, it's a fee. Well, it's all a tax. But they're finding new ways to tax and not calling it taxes.

47:54 Lauren Maillard

Yeah. And Stephen, I just want to say, what is really horrible about this is that it affects the small business owner, the small ecommerce seller, at a much higher level than when we're looking at big ecommerce sellers. Just when you're looking at the compliance cost of collecting and filing returns, it's really unfair. Quite honestly, the state should take that into account at a higher level than they are.

48:27 Lauren Maillard

So how can LedgerGurus help? I can toot our own horn, we are really good at helping individuals and companies with understanding their nexus and where they are.

There are a couple different ways that we can do that. We can do a three-year nexus analysis, we can do a one-year nexus analysis, or we could do a single state nexus analysis. And with each of these different nexus analyses we provide what on here it said exposure review. What that is, it really is a consulting call where we will get on the phone with you, talk through every state, what your exposure is, what your penalties are, what your interest is, and help you come up with a plan to becoming compliant.

49:11 Lauren Maillard

When it comes to sales tax, you want to really be methodical and rational and think about your business as a whole before just jumping in, registering everywhere, collecting sales tax everywhere. And so you'll have a sales tax expert who can help guide you through what you should do, and help you not make decisions for you, but give you some good guidelines and some good advice.

49:49 Lauren Maillard

When it comes to sales tax, what I see quite a bit is there are two camps of people that come to LedgerGurus. People who are really on top of the ball and they want to get compliant ahead of time. And then we have people who come because they've buried their head in the sand and they've just let sales tax compliance, they've ignored it for so long that now it's a really big issue, and we're having to do really big cleanups for them.

50:16 Lauren Maillard

What I recommend is do a nexus analysis, either on your own, reach out to us, talk to a sales tax expert, and then come up with a really easy plan on how to go forward. Make the decision to review your nexus regularly, look at your taxability regularly. If you do that, then you're not going to have penalties, you're not going to have interest, and you're not going to have this huge weight on your shoulders of risk and penalties and interest that could really bring your company to its knees if a state is to come after you.

50:57 Stephen Brown

Okay, you want to do more questions?

Yeah, let's do some more questions. I'm really going to hit the questions that are going to impact a lot of you, and I'll ask experts to try and hit the questions that are really one-off.

Retail delivery fees, is Shopify automatically collecting those fees for us?

51:15 Lauren Maillard

Amanda, why don't you talk about setting up the retail delivery fees, because we are seeing some difficulties with actually calculating it and remitting it.

51:27 Amanda

Yeah, so this actually is going to depend on your tax engine. Each tax engine is going to have its own specific way of setting that up to collect for you. If you're using AvaTax, you need to go in and set up that tax code. If it's Shopify, it's under your tax settings and under advanced settings. So it's really just going to depend on what tax engine you're using.

51:57 Stephen Brown

So if you're registered in Colorado, it doesn't turn on automatically if you have the sales tax turned on in Shopify?

52:09 Amanda

No.

52:11 Stephen Brown

Okay. But it can. This is a related, there are a couple related questions. It can calculate the fees in Shopify, your tax engines typically?

52:26 Amanda

Yep, it'll calculate the fee. But yeah, it's really just going to determine what steps you need to take based off the tax engine itself.

52:36 Stephen Brown

And then one more on retail delivery fees. Is Amazon collecting and remitting the retail delivery fee for you, Amanda?

52:50 Amanda

That I don't know the answer to. Amazon is, I'll be honest, I'm not positive on that one.

53:03 Stephen Brown

Jim, we'll get back to you on that one.

53:12 Lauren Maillard

They should be, but yeah, we'll double check. We believe we can, but we want to make sure we're giving you good information.

53:17 Stephen Brown

What's the best way to reach out to us? contact@ledgergurus.com. Kelley, I'm going to see, yes, on the next slide.

Okay, so we'll go to the next slide. You can reach out to us in this next slide if you need. There's a contact and you could shoot us that question.

53:44 Valerie

Okay, it looks like they do, and I'm going to drop an article in the chat for the participants.

53:52 Stephen Brown

Okay, yeah. So Valerie's going to drop an article.

States that are aggressive versus less aggressive, and penalties, which ones have the most penalties? Do we have anything like that that lists the ones that are the most aggressive?

54:10 Lauren Maillard

That is something that we'll go over when we're doing our consulting call. I think we might have an article out that lists what we're seeing as the 10 most aggressive states. Kelley, do you know if we have that blog article? Go look for it.

54:28 Stephen Brown

We're going to try to find that for you, Mike. I think we have some of that information that we can drop in the chat if you'll stick around.

54:34 Lauren Maillard

And penalties and interest, it really varies the gamut from state to state. I would say that is where the most differentiation is between the states, and how they're dealing with sales tax, is the penalties and interest. It could be a late filing penalty and a late payment penalty, interest. It ranges the gamut from $5 to 39%.

55:04 Stephen Brown

Do you have a recommendation for sellers that sell both retail and wholesale, since some states seem to provide sales and use tax exemptions for wholesalers? Would it be worth considering setting up the wholesale operation as a separate entity?

Oh, this is a hard one. Amanda's going to answer this one. I think this is a really complex one, so although I don't know if that's going to apply to everyone around wholesale retail, so Amanda is jumping on that one.

55:33 Stephen Brown

Exemption certificates. Let's talk about exemption certificates, and this is related. Do you wait to collect these until you've reached the threshold in states you don't have nexus, or do you need to collect these no matter what? When should I get an exemption?

55:48 Lauren Maillard

Great question. So it depends. The obligation to collect them happens when you hit nexus. So you actually do have to register with the state. Sometimes when you register for sales tax, you're also registering to be able to get, well, if you have nexus, if you have the obligation to collect sales tax or to collect the exemption certificates. I think that's the best way to say it.

56:14 Stephen Brown

Okay. And I just dropped in the chat an article around nexus.

Let me just see. We have a lot of content. If you are not watching our blog, you should register for our newsletter. That is where we, you probably got this from an email list, but if for whatever reason you're not subscribed to our newsletter, highly recommend it. We will publish news of our own as well as other good news that we feel like people should be aware of.

56:50 Lauren Maillard

So Stephen, I kind of want to, there's one thing that isn't on here. We do hourly consulting calls. So if you want to reach out and just talk for an hour with one of our sales tax experts, they can really guide you and reassure you that you are doing things right, or help you determine what the next best steps are for you.

57:13 Stephen Brown

There's somebody that asked for the nexus threshold list. Is that readily available?

57:24 Lauren Maillard

That's something that we would go over with you during a consulting call, but otherwise we don't have a blog on that, but you can easily Google it.

57:36 Kelley Birrell

We actually have a download that has all of them uploaded, so I'll put that link in the chat as well.

57:42 Stephen Brown

Kelley, when was the last time that was updated?

57:45 Kelley Birrell

About two months ago.

57:47 Stephen Brown

Oh okay, so it's recent. Yeah. What I would also say with all of our content is that we generally try and keep it up to date on the website, but the most authoritative is going to be sitting down with one of our experts. So use the stuff on the website, or anybody else's websites, with just some awareness that stuff is constantly changing. We don't update our content every single week. We probably could if we wanted to.

58:19 Stephen Brown

Okay, we've got some more questions. What kind of form should I use to collect the sales tax exemption certificate? Is it a generic form, is it a state specific form?

58:39 Lauren Maillard

It's a state specific form, but there are different states who accept the same form.

58:45 Stephen Brown

Okay. Amanda, do you want to jump in and give a little bit more clarity on that?

59:00 Stephen Brown

My apologies, Lauren, I'm trying to get to these questions on the chat.

59:05 Lauren Maillard

So the different exemption forms that are accepted by states, most states, sorry, it's been a while since I've looked at it. There are states that will take their own form, and there are states that will take the, is it the multi-state agreement?

59:30 Amanda

Yeah, so it's going to depend on the state. Some states will accept the SST form or the MTC form. Not all states are on those forms, so you've got to be careful. Each state does have their own requirements. And just because they may fall on the MTC form, there are certain guidelines that you have to follow in order to use that form.

1:00:00 Amanda

So if you have more questions about resale certificates and what is accepted, a consulting call would be a great opportunity to sit down and we could talk over what that looks like and what states will accept what.

1:00:21 Lauren Maillard

Thanks.

1:00:27 Stephen Brown

Okay, one more question and then I think we'll call it a wrap.

If you have one transaction that is over nexus and do not plan to get any others, so you've crossed nexus but then you don't want to do it anymore, can you register then get out of that state, or do you have to continue to file zero dollar returns for a length of time?

1:00:47 Lauren Maillard

It actually depends on the state. So there are some states that will allow you to deregister immediately, and there are some where they make you wait a few months or a few years to prove that you don't have other transactions into the state. So state by state.

1:01:07 Stephen Brown

All right, we're at the top of the hour. I know there are a couple more questions. I'd encourage you guys, if you want really deep technical discussions, take us up on the consulting call. It's worth your time, because this stuff is hard. And as much as we're trying to be authoritative here, the details of your business can be very specific.

1:01:24 Stephen Brown

Thank you for all the feedback on the participation. We're going to look at some of that feedback on the last poll for future webinars. We love the engagement. Hopefully this has been beneficial to you. We look forward to engaging with you wherever we are, whether it's YouTube, web, blogs, webinar, newsletter. Stay in touch. Thank you.

1:01:52 Lauren Maillard

Thanks, Stephen.