A letter from the state asks for your sales data going back to October 2018. That is a business activity questionnaire, and more states are sending them. Kelley Birrell explains what states are looking for: sellers who had nexus before they registered. She covers why registered and unregistered sellers both get these forms, what ignoring one costs, and why a voluntary disclosure agreement (VDA) has to happen before a notice arrives.
Sales Tax
Navigating Pre-Audit Questionnaires: The New Sales Tax Challenge for Online Sellers
4 min
Transcript
0:00 What's happening
Hi. Sales tax is a messy business. In the last six months, we have seen more and more states jumping on the bandwagon of these business activity questionnaires asking questions about sales tax.
Now, if you haven't received one of these letters, or you don't know what I'm talking about, you may be kind of wondering what's going on here. But don't worry, I'm going to give you the lowdown on everything that's going on, as well as what you can do to manage it and protect your business.
0:22 Why Wayfair led here
As you already know, the Wayfair decision of the Supreme Court back in June of 2018 made it so that states can require sellers to collect and remit sales tax even without a physical presence in the state. This ruling was obviously made in response to the changing landscape of sales tax, and was meant to level the playing field between online sellers and brick and mortar stores.
Since then, each state with a state sales tax has worked to establish nexus thresholds and requirements for selling into their particular state.
Business activity questionnaires, or pre-audit questionnaires, seem to be the latest development in this crazy sales tax landscape. Essentially, what's happening is that states are sending out these forms requiring sellers to submit historical sales data. They're specifically looking for businesses that had nexus, or a large enough economic presence in the state, to trigger sales tax obligations before they officially registered.
We are seeing states like Illinois, Washington, Arizona, and Missouri leading the charge on this, but don't be fooled into thinking that this isn't a big deal. More and more states are starting to join this quest. These states are making it clear that they aren't content with just collecting sales tax moving forward. They're also looking to recoup funds that they believe should have been paid already.
1:34 Why you're getting one
Now, something you'll want to note about these questionnaires is that they can be extensive. In a lot of cases, they are requesting information way back to October of 2018, when these nexus laws went into effect from the Wayfair decision. By looking at sales data over this entire period, they're looking to identify businesses that should have been collecting and remitting sales tax but failed to do so.
Now, you might be thinking, well, I'm not even registered in all of these states, so this isn't something I need to worry about. But don't be fooled. We are seeing that registered and non-registered businesses are receiving these forms.
If you've received one of these questionnaires, it is crucial that you respond to it accurately and promptly. Don't put your head in the sand and pretend this one doesn't exist. That choice could actually lead to increased penalties and interest and all kinds of problems for your business.
2:22 Considering a VDA
Now, if you know you should have been filing but you haven't been, you may want to consider something called a VDA, or a voluntary disclosure agreement. With this option, you come forward to the state and acknowledge your historical tax liabilities, and then you set up a payment agreement to pay back that tax liability with much less severe penalties.
Now, keep in mind that this option is no longer available once you've received a notice from the state. So be proactive and take care of it quickly, so that you are able to not miss out on this valuable opportunity of reducing your penalties and fees.
2:54 What to do next
Now, more than ever, it is vital that you have a firm grasp on your sales tax exposure. If you haven't yet, take some time to look over your sales data and determine where you have crossed these economic thresholds and where you need to register.
If you need help with any of these questionnaires, or with getting a nexus analysis done, be sure to reach out to us from the link in the description below. We have a whole team of sales tax experts who do this kind of thing every day. They know how to work with these states and they can help you to become sales tax compliant. Don't put your head in the sand and pretend this isn't an issue, because it is. But we can help.
In a couple of weeks, we are doing a webinar on how states are becoming more aggressive towards online sellers about sales tax. We're going to go more in depth into this kind of thing, as well as show you how you can handle this and how you can protect your business. The link to register is in the description below. If you're watching this after the webinar has already passed, we've changed the link so that you can watch the webinar on demand.
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