Online Sales Tax | Aggressive States to be Aware of and Why

Overall, because of COVID-19, so many states are losing revenue, so they're trying to recoup the revenue they're losing from auditing more online sellers, especially remote sellers. Even in our company we've seen clients been audited during this crazy time.

So today I really want to share with you what are the methods they're using, how are they being aggressive, and what are these states. So when you're trying to decide, should I register in this state or not, how should I approach my nexus analysis, this is something you can keep in mind. Because if a state is being aggressive, this will increase the chance of you being audited.

1:22 One, partnering with Amazon

Okay, so I've summarized five ways of these states being aggressive.

The first one is they partner with Amazon. So California and Washington have gotten lists from Amazon about their sellers. They've received lists with their seller's information, when they started having inventory in the states of Washington and California.

So California haven't even stopped doing this, even in the face of COVID. They've been sending out letters to sellers that they obtained from Amazon, saying I've seen that you started having inventory in my state since this date, why haven't you been filing? Same thing with Washington, but I don't think they are as aggressive as California. So that's the first way, is to partner with Amazon.

2:12 Two, questioning registration dates

And the second way is they're starting to question registrations.

So we all know Wayfair and South Dakota was 2018 in June, and that's been almost two and a half years. So the Wayfair decision is kind of getting old. A lot of these registrations that are happening right now, if you don't put a historic date, meaning let's say if a business wants to get registered in South Dakota using December 1st as effective date and you can start collecting on December 1st, this is a future date, not a historic date.

South Dakota would come and ask you, so I see that you say you start having nexus on December 1st. Can you prove to me that your sales did not pass the threshold anytime before December 1st? Because their economic nexus rule came out mid of 2018.

3:22

So among this list of states questioning registration date and asking for proof that they did not pass economic nexus anytime earlier than the registration date are South Dakota, which I used as an example, so South Dakota, North Dakota, Wisconsin, and Maine.

So they're auditing registrations, they're asking people questions to make sure they use the correct registration date. So they want to recoup some of the back taxes that these companies might owe. So that's the second way.

4:01 Three, buying lists of sellers

The third way is, oh, I laugh at this because I live in Utah, and when I heard that Utah and Connecticut bought a list of online sellers, and they just go off of this list to question sellers whether they have economic nexus, I couldn't believe it.

So Utah was doing this before the pandemic and they've slowed down, but I can see them resume this effort pretty soon, or maybe next year. So they actually went out and bought a list. This is Utah and Connecticut.

4:41 Four, sharing information between states

The fourth way is the states kind of share information with each other. It's not any formal knowledge which states are in alliance with each other, but from a few webinars I attended, it sounds to me that it's Southeast states and some Midwest states.

So if you get audited by one of the states, their neighboring states might get information that they should start auditing you too. So this is the fourth way. It's just alliance and information sharing between states.

5:18 Five, adding audit resources

And then the fifth way, the last way the states are being aggressive, is the states that just have lots of resources. I've seen states like Michigan, they hired more auditors, but that's before COVID as well. And then states like New York and Texas, they just have lots of resources, so they can send out auditors to go after remote sellers.

5:43 What this means for your nexus analysis

So just to summarize, the five ways the states are being aggressive when it comes to sales tax are partnership with Amazon, questioning registrations, purchasing a list, sharing information between different states, and increasing their auditing resources.

So when you're considering, where should I register, what are my nexus, these are good things to keep in mind to assess your risk exposure. And hopefully this will help you decide which states you want to end up registering and remitting sales tax to.

If you have any questions, leave it in the comment and I'll for sure answer your questions. If you like this video, please like it and share it with your other online seller friends. I hope you all have a great day, and I'll talk to you soon. Bye.