Reckless Sales Tax Registrations, the Implications of the Shotgun Approach

by Will Clarke and Gunner Huggins

The effects of South Dakota v. Wayfair[1] continue to be felt years after the landmark decision. Companies large and small are impacted by the complicated nature of navigating economic nexus as more and more states impose thresholds. This begs the question; what should companies do? In recent months, many companies have taken a reckless “shotgun” style approach. A new CFO or junior accounting staff may register and begin to collect/remit sales tax in a variety of states because they believe nexus exists. Although meant with good intentions, these actions can be quite risky. Taking such actions limit a company’s means of mitigating potential past exposures. At this point, three years post Wayfair, companies can unknowingly have years of sales and use tax exposure. Tack on interest and penalties, and this can mean a huge price tag.

By far, the best option to mitigate potential sales tax exposures is to engage a team of state and local tax professionals. A team of individuals experienced in nexus, taxability, exposure calculation, and mitigation are best suited for a safe and favorable outcome. A multi-step plan identifying disconnects and satisfying past exposure in the most economical manner is required. Many states have implemented a Voluntary Disclosure Program which is designed to encourage taxpayers to come forward, sometimes anonymously, enter into a contract with the state, and pay past due taxes. As a trade-off, the states limit their lookback period and waive penalties. This contract ensures that the company immediately comes into compliance and eases all concerns of the DOR (Department of Revenue) opening an audit for prior years. Unfortunately, this type of program is only available to taxpayers who have never registered for sales and use tax with the state and have not received any correspondence from the state regarding sales and use taxes. Making hasty state and local sales tax registration decisions can preclude your company from a Voluntary Disclosure program.

We are here to help. Every day, we help customers of all sizes and industry groups navigate sales and use taxes in a way that best benefits the company. Please contact our team to discuss sales tax registration or any sales and use tax concerns you may have.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.

[1] South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018).