Are You Required to Collect and Remit Sales Tax in Other States? Help is Available!
December 4, 2019
Did you know that although your business may only be physically located in Michigan, if you ship your products to customers in other states, you may also be required to collect and/or remit sales or use taxes to those other states?
For decades, U.S. Supreme Court precedent required an out-of-state (or remote) seller to have physical presence in a state before that state could require the seller to collect, pay, or remit sales tax on sales into that state. However, on June 21, 2018, the U.S. Supreme Court overturned those precedents in South Dakota v Wayfair, holding that physical presence is no longer required. Specifically, the Court concluded that South Dakota’s law, which mandates the collection and remittance of sales tax if the seller had sales exceeding $100,000 or 200 or more transactions with South Dakota purchasers in the prior calendar year, is constitutional. In other words, the Court upheld “economic presence” nexus for sales tax.
Michigan and many other states enacted legislation similiar to South Dakota’s shortly after the Wayfair decision was issued. State laws very widely regarding the amount of the thresholds and how to calculate them. Therefore, it is crititcal that Michigan-based sellers review state law for all states into which they are making sales to determine if they are required to collect and/or remit those states’ sales tax. Failure to register and remit tax in other states may result in tax assessments, including penalties and interest.
Michigan, along with 23 other states, is a member of the Streamlined Sales and Use Tax Agreement (SSUTA). The other SSUTA states are Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming. Tennessee is an associate member of SSUTA. Under the SSUTA these states have:
- Developed a central registration system that allows businesses to register with any or all of the 24 streamlined states by completing one simple online application. There is no cost to complete and submit this registration for any of the streamlined states. Once you are registered in a state, you are expected to collect and remit the appropriate sales or use taxes for that state and file the required returns.
- Entered into contracts with certified service providers (CSPs) and agreed to compensate the CSPs for the streamlined states in which you are a “volunteer seller” to handle your sales and use tax collection, reporting and remittance requirements. Under these contracts, the CSPs will provide the software and services necessary to (i) set-up and integrate their tax calculation software with the business system, (ii) calculate the amount of tax due on a transaction at the time of sale, (iii) generate and file the required sales and use tax returns for each of these states, (iv) make the required remittances to each of the states, (v) respond to notices and audits and (vi) protect the privacy of your information. CSPs will also provide these services for a fee to the business if the business is not a volunteer seller in a state.
- Completed a taxability matrix that helps determine the taxability of various categories of products in their state.
- Developed rate and jurisdiction databases that identify the state and local tax rates that apply to an address based on the street address, 9-digit zip code and 5-digit zip code.
- Adopted a uniform Sales and Use Tax Exemption Certificate that can be used to claim applicable exemptions from sales tax in the streamlined states.
If you have questions regarding the tools available through streamlined, please visit its website, or contact the Streamlined Sales Tax Governing Board. The Governing Board also maintains a list of all states’ (SSUTA and non-SSUTA) economic nexus standards, which is available here. If you have questions regarding a particular state’s requirements, please contact that state directly.
Non-SSUTA states have not undertaken these measures. Businesses making sales into non-SSUTA states should review those states’ laws and contact them directly if they have any questions regarding their laws.