Special Report: How COVID-19 is changing business sales tax obligations and enhancing risk [Part 12]
CPA Firms Building a Sales and Use Tax Practice: The Time is Now
COVID-19 is changing the way we do business, the way we buy, the way we sell — and how all of this affects businesses of all sizes and industries as well as their customers.
Greetings from my home office in NYC. I have covered how COVID-19 is changing the way you and I literally live our lives since early March. I sincerely hope you and your families are safe and well. In this week’s installment of my special report, I discuss how CPA firms can create or enhance how they can assist small businesses and other clients navigate the increasingly complex area of sales and use tax compliance in the face of SCOTUS’ decision in Wayfair changing the standard for states and municipalities to impose sales and use tax compliance obligations from physical to economic nexus, and the explosion in online and remote selling caused by COVID-19 lockdowns and closures. You can see more COVID-19 related blogs here.
As I have closely followed tax, business and consumer trends, particularly since the COVID-19 lockdowns began in the U.S. in early March, it has become increasingly clear that there is one tax type in particular that has a direct and constant effect on many of the roughly 31 million small businesses (over 90% of all businesses) in this country. This is the sales and use tax (SUT) that is imposed by 45 of our states (and an estimated 13,000 local jurisdictions) on sales of goods and some services. Most of the top 100 CPA firms reportedly are showing significant increases in revenue in their SUT practices.
Two years ago, SCOTUS in Wayfair v. South Dakota expanded the reach of states across the country to impose sales and use tax obligations on retail and other businesses based on economic activity in a state (so-called economic nexus), not physical presence.
In March, consumer behavior and the way many businesses operate changed dramatically as the pandemic spread across the U.S.; individuals were told to stay home, and brick and mortar stores were forced to close. Many small businesses established or greatly expanded their online selling presence and capabilities. That has resulted in an explosion in e-commerce and remote selling and a significant increase in online sales tax revenues in most states. State officials have reported to me that sales tax collections from online sellers are up 30% and more in many states. The increases in online sales tax collections have been the one bright spot for state tax revenue collections during the pandemic.
As more and more online and other businesses sell into new states and municipalities, they risk becoming subject to registration, and sales tax collection and remittance rules there. The impact will be felt primarily by smaller unsuspecting businesses that make sales in states where they are not physically present or collecting sales tax, including many of Amazon’s third-party sellers and sellers based outside the U.S. In fact, many small businesses have already received sales tax audit notices and need guidance and representation.
Most small businesses are increasingly looking to their CPAs to provide sales and use tax planning, guidance, audit support and compliance services. Many CPA firms don’t provide these increasingly vital services. As firms move from tax return preparation, creating or expanding a sales and use tax compliance and advisory practice can help to meet the needs of the firm’s clients and serve as an important revenue-generating practice now and going forward.
Read my article in Accounting Today for detailed guidance in how CPA firms can efficiently and effectively create or expand a sales and use tax practice.
This special report is part of an ongoing series from Wolters Kluwer focusing on tax and business developments, legislation and government relief efforts and other COVID-19-related activities. If you have questions, concerns or need additional insight on your situation, you can reach out to author and sales and use tax expert, Mark Friedlich at [email protected].
NOTE: CCH Incorporated is not engaged in rendering legal, accounting, tax or other professional services. If legal, accounting, tax or other expert assistance is required, the services of a competent professional should be obtained.
If you would like to learn more about the Wolters Kluwer CPA Partner Program and how to address client sales tax compliance needs, reach out to us.