Numerous articles about South Dakota vs. Wayfair, Inc., commonly referred to as ‘the Wayfair case, have been published since the case was decided in June of 2018. The application of that decision is well underway. Most states now have their procedures in place to make compliance easier and, as expected, we are seeing increased audit activity.
All states that have sales and/or use tax have now passed nexus standards for remote sellers with all but one has passed the expected date of tax collection. The good news for construction contractors is that even more suppliers should soon be collecting tax; therefore, the burden of self-assessing use tax should be reduced. The less than good news is that the type of contract in place, separated (time and material, cost plus, etc.) or lump sum, and the detail in each contract’s statement of work and tax clause, are now more important than ever to avoid unnecessary audit assessments.
Alaska
Although there is no state level sales tax in Alaska, there are municipal level taxes, and more municipalities are joining the centralized collection effort called the Alaska Remote Seller Sales Tax Commission. Keep in mind, if your company is sending any prefabricated material into Alaska, the exact ship to address is important to avoid any unnecessary tax.
Florida
After many failed legislative attempts, Florida finally has an economic nexus standard in place. That law was effective as of July 1, 2021, and required remote sellers to collect and remit sales and use tax if in the previous calendar year, beginning with 2020, they have taxable remote sales in which the sum of the sales price exceeds $100,000. The expected date to begin tax collection was October 1, 2021, so construction contractors may have seen a change on supplier’s invoices on or around that time. The most important note regarding Florida, though, is that their exemption certificates are issued annually so, if a contractor is required to collect and remit, they will need to get into the habit of asking customers for new certificates each December.
Kansas
The economic nexus standard in Kansas was initially vetoed but the House and Senate overrode the governor’s veto and put the standard in place, effective July 1, 2021. Remote sellers are required to collect and remit tax if, in the current or immediately preceding calendar year, they have more than $100, 000 of cumulative gross receipts from sales to Kansas customers. There is still some lack of clarity on the exact definition of “gross receipts,” so please check in with us at VonLehman for the latest on that definition before opening an account.
Missouri
Last but not to be overlooked is Missouri, whose economic nexus standard is not effective until January 1, 2023. A remote seller is required to collect Missouri tax if they have taxable sales of $100,000 or more to the state in the previous twelve months. Keep this in mind if your company is considering bidding on contracts in Missouri or shipping prefabricated materials to Missouri this year.
Audit Activity
We are seeing increased audit activity from Illinois, Indiana, Ohio, and Kentucky at this time. Illinois is obviously looking for those that began collecting later than the effective date of their economic nexus law or have not yet begun to collect. All states are being less patient about the timing of beginning audit field work, so be prepared with real facts about your business to help you to negotiate a more convenient date if an audit letter arrives in the mail. Also, it is a good time to check that any exemption certificates you need, or that you owe to others, are requested or provided.
Kentucky recently passed legislation that included a tax amnesty program to run from October 1, 2022, to November 29, 2022, that will apply to sales and use tax, and several other taxes, for the periods beginning on or after October 1, 2011, but prior to December 1, 2021. Please also note, the amnesty period may be pushed into 2023 if resources are not available to administer the program. Regardless of when the amnesty period is, the taxpayer would also benefit from the potential waiver of penalty and 50% of interest to be paid on the past due tax, making this a great time to clean up any past liability in Kentucky.
Ohio has also been considering offering an amnesty program. Nothing is firm at this time.
For any questions related to the sales taxes and nexus standards discussed in this article, please contact VonLehman’s State and Local Tax Expert, Robin Teeters, at rteeters@vlcpa.com or 800.887.0437.
