Missouri: the final sales tax state to adopt economic nexus standards

It took a while, but as of January 1, the Show Me State became the final general sales tax state to require remote sellers and marketplace facilitators meeting economic nexus standards to collect and remit sales or use tax for sales to Missouri customers.

In the wake of the Wayfair 2018 decision by the U.S. Supreme Court overturning the longstanding physical presence test, by 2022 all general sales tax states but Missouri decided to use economic activity thresholds to determine which sellers and marketplaces must collect and remit sales or use tax in their states.

Missouri’s Particulars for Remote Sellers

Thresholds:  $100,000 in sales of taxable tangible personal property sold to Missouri customers and shipped into the state annually.  This includes sales through a marketplace facilitator.

Measurement Period: Each calendar quarter determine if your taxable sales into Missouri exceeded $100,000 in the preceding 12-month period.  When exceeded, you are required to collect and remit tax to Missouri no later than three months following the close of the quarter.

Marketplace Facilitators: The registration requirements, forms, and particulars regarding marketplace facilitators, including the availability of a Timely Discount, are more complex.  The Missouri Department of Revenue has Remote Seller and Marketplace Facilitator FAQs to answer questions.

Registration:  You can register online through the My Tax Missouri portal.



The Bad News: The adopted standards are not ideal because the states have employed a complex array of rules or factors to determine when nexus is met.  The different factors by state include which sales count (gross, retail, or taxable only), whether marketplace sales are included, the value of sales and/or number of transactions that trigger nexus (there are six variations), the measurement period (there are six variations), and when remote sellers must register (there are seven variations).  The mix and match combinations the states have individually adopted are confusing at best.

The Good News: If you are a TaxCloud customer, we automatically track when you meet the economic nexus thresholds and standards in each state and begin collecting and remitting sales or use tax as required in each state. If you are not a TaxCloud customer, sign up at TaxCloud.com to keep up to date and compliant in the complex and constantly evolving world of sales and use tax.


TaxCloud is among those actively advocating to the states that they simplify matters by adopting uniform standards across the states that are easy to understand.

Streamline Work Group Improves Exemption Certificate and Related Directions and Information


Alison Jares is Deputy Director of Business Tax at the South Dakota Department of Revenue. She has been with the department for 24 years starting as a Revenue Agent in the newly formed Taxpayer Assistance Center. In her role as Deputy Director, Alison focuses on sales and use tax policy and training as well as contractor’s excise tax policy and training. She is also active in the Streamlined Sales Tax Program currently serving as the chair of the State and Local Advisory Council. Prior to working for the Department of Revenue Alison worked for the Nash Finch Company in grocery retail operations throughout the Midwest. She is a graduate of the University of South Dakota where she obtained her Bachelor of Administration.

Alison was privileged to be in the first class of the governor’s State Leadership Excellence program in South Dakota. Alison and her family have called the Capitol City of Pierre home for over 25 years.

Russ:  Alison, Christie, David, Thanks for joining us today to talk about the Streamline Sales Tax exemption project.

One of the most significant decisions the SST Governing Board initially made was to allow sellers to be relieved of liability if they did not collect sales tax because they accepted an exemption certificate from their customer at the time of sale or within 90 days of the sale, without regard to “good faith.”  What does this mean and why is this so important to sellers?

Christie:  The purpose of the Streamlined Sales Tax Agreement (Agreement) is to simplify and modernize sales and use tax administration to substantially reduce the burden of tax compliance. The Agreement focuses on improving sales and use tax administration systems for all sellers and for all types of commerce in several areas, one of which is the simplified administration of exemptions (SSUTA Sec. 317).  As part of the exemption administration simplification effort, a single certificate of exemption was created that all SST member states accept. With limited exceptions, if a seller accepts a fully completed certificate at the time of sale or within 90 days of the sale, the seller will be relieved from liability for any tax that might be due if it is determined that the purchaser improperly claimed an exemption and the purchaser will be held liable for the nonpayment of tax. Prior to the adoption of SSUTA Sec. 317, and member states amending their statutes or regulations to comply with Sec.317, a seller was generally not relieved of liability unless it could show that the certificate was accepted in good faith.  In the context of exemption administration, “good faith” means that the exemption claimed on an exemption certificate must be:

  • statutorily available on the date of the transaction in the jurisdiction where the transaction is sourced,
  • applicable to the item being purchased, and
  • reasonable for the purchaser’s type of business.

To require an out-of-state seller to know the answers to the questions raised in this definition for all its customers and for all of the states to which it ships its products is unreasonable and does not fall within the goal of reducing the burden of tax compliance.  So, in the spirit of simplifying sales tax administration and reducing the burden of tax compliance, the Agreement provides for the relaxation of the good faith requirement.   If states are imposing good faith requirements, they are not easing the burden of tax compliance, particularly on remote sellers.   

If, however, a state finds that a purchaser is repeatedly issuing incorrect certificates, the state has the right to contact the purchaser to determine if the purchaser simply does not understand their responsibility or if the purchaser is knowingly claiming an exemption that does not apply and can hold the purchaser responsible for the tax due on those transactions.

Russ:  Has this decision created any problems for the states?

Christie:  Historically most states have had a “good faith” standard in their laws related to sellers claiming an exemption and the documentation required to demonstrate the right to the exemption.  The change to remove that “good faith” standard may have proved more difficult for some states than others.  What difficulties the change has caused the states cannot be specifically identified here.

From an efficiency standpoint, if a state determines a purchaser is improperly issuing an exemption certificate to a particular seller, that purchaser may be improperly issuing exemption certificates to numerous sellers, and it is likely in the best interest of the state to contact that purchaser to correct the situation.

While all member states are required to remove the “good faith” standard from their laws to be in compliance with the Agreement, there is currently a full member state that has not removed the “good faith” standard from their law.  This has put the state out of compliance with the Agreement.

Russ:  Obtaining and retaining exemption certificates is a critical part of sales tax administration.  The three of you head up a work group that made revisions to the SSTGB Exemption Certificate and the accompanying instructions.  We appreciate your efforts in addressing the complexities of exemption certificates. It is very important for us and our merchants.  You are also working on a disclosed practices matrix for the Streamlined Sales Tax States.  Why did SSTGB think this was an important undertaking?

Christie:  The SST staff identified the need for updates to the Streamlined Exemption Certificate after receiving numerous questions about how to properly complete the certificate. Businesses asked questions specifically regarding the ID number to list when claiming a sales tax exemption on purchases of items to be resold.

Alison:  The business community also asked for clarity regarding what is a “properly completed exemption certificate”. Streamline member states, in accordance with the Agreement, relieve a seller of sales tax liability when the seller accepts a properly completed exemption certificate. The recent changes made to the exemption certificate provide direction to both sellers and purchasers regarding how to properly complete the exemption certificate. Sellers and purchasers want to do what is expected but need states to provide clear instructions.

Russ:  The exemption for resale is one of the most common.  While it is not uniform across the states it is fairly well standardized.  What are some of the most common pitfalls or mistakes for sellers?

Alison:  The most common questions that SST and states receive from sellers include:

  • What is a properly completed exemption certificate?
  • How frequently do exemption certificates need to be updated?
  • Is my business liable for sales tax if a purchaser claims a sales exemption as a resale purchase but then does not resell the item?

The recent updates and changes to the Streamline exemption certificate as well as the disclosed practices member states are working on to assist sellers with these questions.

 Russ:  What are some of the most common pitfalls or mistakes purchasers make when completing an exemption certificate for resale?

David:  Not providing correct ID numbers.

Russ:  What are some significant pitfalls and mistakes for purchasers and sellers with other exemptions? 

David:  Purchasers and sellers might assume a sales tax exemption allowed in their home state is also allowed in all states. This is an incorrect assumption. Purchasers and sellers must research the tax exemptions provided in the state the sale is sourced to. This is one reason Streamlined is creating the disclosed practices specific to the use of the Streamlined Sales Tax Exemption Certificate. These disclosed practices provide direction and resources for purchasers and sellers regarding exemptions allowed in the member states.

Purchasers sometimes mistake use-based exemptions for entity-based exemptions (e.g., agricultural production) and purchase items exempt that do not qualify for the exemption because it is not an exempt use.

Russ:  What encouragement would you give to other states to join the Agreement?

David:  The Agreement provides many benefits to its member states. First and foremost, one of the biggest benefits to membership was the Supreme Court’s favorable view of South Dakota’s membership in Wayfair. While state laws differ, the Court’s holding that membership reduced undue burden on sellers gives comfort to other member states that their economic nexus policies are on firm constitutional footing. 

Disclosed practices, such as the current work on exemption claims, also greatly reduce burden on sellers. It provides a one stop shop for a seller to gain a large amount of information regarding many states. This is not only a benefit to sellers in other states, but also to sellers located in each member’s own state as it provides your own constituents with a vast body of very helpful information. I would encourage non-member states to consider voluntarily responding to the Agreement’s disclosed practices as a way to help reduce burdens on sellers. 

Streamline’s registration system, which allows for registration in all member states by filing one registration also reduces burdens on sellers and encourages sellers to register in states due to how easy it is.

Finally, CSPs provide a low burden and cost effective way for sellers to comply with state sales and use tax laws. 

Russ:  There are hundreds of other state sales and use tax exemptions across the states.  What are the best methods for individual taxpayers and practitioners to understand what exemptions may apply to their businesses and clients and what the requirements are to claim them?

Alison:  The best advice I can give anyone is to contact that state directly. Each situation can be unique. Discuss your specific transaction directly with the state the sale is sourced to.

Many states have written guidance provided on their state website. Use the information as a source to start your review but contact the state to ensure you are understanding and applying the guidance correctly, particularly if the guidance is dated. Streamlined provides links to every (member and nonmember) state’s website and sales tax division under the “Contacts” tab on its website.  This is a quick way to find information for any state.

Russ:  What are some of the most unusual sales and use tax exemptions you have encountered in your careers and in this study?

Alison:  Each state’s tax exemptions are often specific to the leading industries of that state. For example, South Dakota’s primary economic driver is our agricultural industry. There are numerous sales tax exemptions specific to the agricultural industry.

David:  One strange exemption in Michigan is for aquatic vegetation harvesters.

Russ:  What are your recommendations for record keeping so that purchasers and sellers can be comfortable with their practices and know they will be ready for any potential inquiry or audit?

Alison:  Sellers, maintain copies of all exemption certificates, proof of exemptions (such as method of payment), bills of lading or proof of deliver location. These documents can be held in paper or electronic form. Be sure to maintain the documents to support any exemption that your provide to your customers.

David:  Purchasers that did not claim an exemption and paid tax on a purchase should always maintain a copy of their receipt, invoice, bill of sale, etc. that indicates the amount of tax paid.  Failure to do so will likely result in a use tax liability. 

Voluntary Disclosure Agreements: Getting Right With State Taxes

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Richard Cram is the Director of the Multistate Tax Commission’s National Nexus Program in Washington, D.C. The National Nexus Program provides a Multistate Voluntary Disclosure Program that 38 states and the District of Columbia participate in. Cram has recently contributed articles to Tax Analysts State Tax Notes and has presented as a co-panelist at the Georgetown Law School Advanced State and Local Tax Institute and the Paul J. Hartman SALT Forum. Prior to his current position, Cram served for 15 years as the Director of Policy & Research in the Kansas Department of Revenue, and for 2 years as an attorney in the Legal Services Bureau of the Department, in Topeka, Kansas. He has worked as a research attorney for the Kansas Supreme Court, and practiced law as an associate in law firms in Chicago, Illinois and Goodland, Kansas. Cram graduated from the University of Kansas School of Law. He currently resides in Alexandria, Virginia.

Russ:  First things First.  In simple terms, what are voluntary disclosure agreements (VDAs) and what do they typically cover?  And importantly, what are their most common limitations? 

Richard:  A voluntary disclosure agreement is a contract between the taxpayer and the state tax agency, whereby the taxpayer acknowledges nexus with that state for certain tax types, represents its activities in the state and that the taxpayer has not had prior contact with the state, and agrees to perform the following within the required time period:  register, file returns, and pay  past due taxes (including interest) accrued during the state’s “lookback period” (which generally ranges from 3 to 5 prior tax years, depending on the state). In return, the state waives penalties and back tax liability owed prior to the state’s lookback period. 

Voluntary disclosure agreements are generally limited to sales/use taxes, income/franchise taxes, employer withholding taxes, or other excise taxes that the state tax agency administers, but not property taxes. Local taxes associated with these tax types are also included, unless the local tax is locally administered. In that case, the voluntary disclosure agreement would need to be entered into with that local administering authority, which is beyond the scope the MTC Multistate Voluntary Disclosure Program. 

Voluntary disclosure agreements do not protect the taxpayer against audit by the state for the time periods included in the lookback period and going forward. 

If the taxpayer has past due collected but unremitted sales tax or withholding tax, voluntary disclosure agreements generally do not include waiver of penalties or lookback period relief for those amounts. 

Russ:  How does a company most often find out that a VDA is something they may need to explore? 

When the company selling in multiple states seeks competent state and local tax professional advice, the consultant should alert the company to potential tax liability exposure, including the need to seek voluntary disclosure relief. Also, if the company is large enough to have staff dedicated to state and local tax compliance, that staff should be aware of such tax liability exposure and alert the company. Otherwise, it falls upon company leadership to stay abreast of state and local tax developments that may affect the company’s multistate tax liability exposure (such as the 2018 Wayfair decision and states’ enactment of sales/use tax economic nexus laws). The company needs to constantly maintain awareness of its current and historic physical presence and economic presence in all of the states where it is making sales or conducting other business activity. 

Merger and acquisition transactions often result in either the entity being acquired seeking voluntary disclosure relief prior to the transaction, or the acquiring entity seeking voluntary disclosure relief for the acquired entity after the transaction 

Richard:  With the Supreme Court Wayfair decision, widespread adoption of economic nexus thresholds, and other tax changes in recent years many companies are obligated to collect and/or pay taxes in many more states than previously.  Are you finding that many companies do not have sufficient awareness of their potential liabilities? 

Yes. A surprisingly large portion of small-to-medium-size remote sellers apparently still remain unaware of the Wayfair decision and states’ enactment of sales/use tax economic nexus laws.  

Russ:  Because of these changes in the tax landscape, are you seeing an increase in use of VDAs? 

Richard:  Yes. MTC Multistate Voluntary Disclosure Program applications have more than doubled since the Wayfair decision. However, we know that multiples more of businesses out there should be applying but have not yet.  

Russ:  Can VDAs be used for both sales tax and income and franchise taxes?   

Richard:  Yes. The taxpayer chooses in the application which tax types to propose including in the agreement, and one or more tax types can be included. Certainly, if the taxpayer has liability exposure for sales, income and franchise tax and has not had prior contact with the state concerning any of those tax types, they should all be included in the agreement. 

Russ:  If so, must the taxpayer enter into an agreement on both? 

Richard:  As mentioned above, the taxpayer decides in the application which tax types to propose to include in the agreement. When the taxpayer’s application is sent to the state for review, the state may determine that based on the facts represented in the application, the taxpayer has nexus for tax types in addition to the one the taxpayer chose in the application. Then the state may respond that the agreement needs to include those additional tax types before the state is willing to sign the agreement. At that point, the taxpayer can decide to enter into an agreement including those additional tax types, or withdraw the application. Keep in mind the taxpayer can apply to the MTC Multistate Voluntary Disclosure Program anonymously and is not required to disclose identity to the state until the state first signs the agreement and it is sent to the taxpayer for execution. 

Russ:  Given that the taxpayer will be making their presence known, are there any reasons not to include both taxes? 

Richard:  I cannot think of any. The taxpayer certainly wants to avoid entering into a voluntary disclosure agreement for one tax type with the state; Then after the taxpayer has already disclosed its identity to the state in that agreement, the state discovers that the taxpayer has nexus for additional tax types not included in that agreement. The taxpayer could then face back tax liability that would not be eligible for inclusion in another voluntary disclosure agreement. 

Russ:  Once a taxpayer concludes that they have an obligation to collect sales tax, they presumably lower their exposure if they begin to do so as soon as possible. I understand that doing so can actually disqualify a taxpayer from entering into a VDA in many states.  Is this true? 

Richard:  Yes. One of the qualifying criteria for voluntary disclosure relief with states participating in the MTC Multistate Voluntary Disclosure Program is that the taxpayer has not had prior contact with the state concerning that tax type. If the taxpayer has registered, filed returns, and remitted sales tax prior to applying for voluntary disclosure with that state for sales tax, then such prior contact would make the taxpayer ineligible for the MTC Program. The state already has the taxpayer’s identity. The purpose of voluntary disclosure relief is to provide an incentive for an undiscovered taxpayer to come forward to a state and become tax compliant, in return for the relief provided. 

We also see taxpayers who have collected but not remitted sales tax and not registered with the state prior to submitting their application for voluntary disclosure. While this will not disqualify the taxpayer from eligibility for voluntary disclosure, most states will not waive the penalties for failure to timely remit that collected sales tax. Registration for sales tax is what gives the seller the legal authority to collect that sales tax. A business that collects the tax without being registered is breaking the law. 

As long as the taxpayer waits to register and start collecting sales tax until after submitting an application for voluntary disclosure to the MTC Multistate Voluntary Disclosure Program, that activity would not be considered a disqualifying prior contact with the state. The taxpayer does need to disclose in the application the intent to register with the state after submitting the application. Otherwise, registration with the state may trigger notices from the state that otherwise would not be triggered if the state’s voluntary disclosure staff is aware that the applicant is registering with the state.  

Registration after submitting the application but before the state has signed the agreement would provide the state the applicant’s identity prior to the applicant knowing for certain that the state will enter into the voluntary disclosure agreement, but it does allow the applicant to commence collecting the sales tax sooner, thus reducing liability exposure for uncollected tax. 

When the taxpayer waits to register with the state until after the taxpayer receives the state-signed agreement, the taxpayer has assurance that the state is granting voluntary disclosure relief, assuming the taxpayer timely follows through with executing the agreement, registering, filing returns and paying back taxes for the lookback period. 

Russ:  This variation among states can be a real trap for an unsophisticated taxpayer.    Do you have suggestions as to how to deal with this problem? 

Richard:  With a few exceptions, states that participate in the MTC Multistate Voluntary Disclosure Program use the same standard agreement form. When the taxpayer submits an application to the MTC Multistate Voluntary Disclosure Program, selecting the states being applied to, MTC staff will send the taxpayer the standard agreement form for review and approval. Once the taxpayer approves that form (this does not require the taxpayer to sign anything—just approval to move forward with the process) MTC will use that standard agreement form to prepare a draft agreement for the state and send the application along with that draft agreement to the state, which will include the tax types to be included and the proposed lookback periods. If the state finds the draft agreement acceptable, the state will sign the agreement and return it to MTC staff, who will forward it on to the taxpayer, along with instructions for executing the agreement, returning it directly to the state, registering with the state, filing returns and remitting back taxes owed. The state could instead send a counterproposal back to MTC staff (which will be forwarded to the taxpayer) that might change the lookback period, request that additional tax types be included, etc. At that point, the taxpayer can decide whether to continue proceeding forward with the application or withdraw it. Since the taxpayer’s identity has not been disclosed to the state at that point, the taxpayer will be no worse off, should the taxpayer decide to withdraw. 

Even though states may vary on their lookback periods or other policies concerning voluntary disclosure, the taxpayer always has the option to withdraw from the process prior to executing the voluntary disclosure agreement that the state has signed, which is the final step in the process. 

Russ:  What are the other most significant variations among the states?  (e.g. lookback periods, taxes covered, what constitutes inability to use a VDA). 

Richard:  State do vary on the length of their lookback periods, and those can also vary, depending on the tax type. Income or franchise tax periods are generally measured in prior past due tax years, and sales tax lookback periods are measured in months (but roughly equivalent to the income or franchise tax lookback period). We publish on our website a spreadsheet showing the lookback periods for participating states in the Program, which is attached. 

Because the state tax agencies are the entities that participate in our Program, the tax must be administered by that tax agency in order for it to be included in a voluntary disclosure program. Thus, only local income or sales taxes that are centrally administered by the state tax agency can be included in the voluntary disclosure agreement. If the local taxes are locally administered, unfortunately, that means the taxpayer must seek voluntary disclosure directly with those local tax administration entities. For example, Colorado and Louisiana have locally administered local sales taxes, so to the extent those taxes are locally administered, they could not be included in a voluntary disclosure agreement with either of those states and would need to be the subject of separate voluntary disclosure agreements with those locally administered local jurisdictions. However, both states are working toward total central administration of their local sales taxes in the future. 

There may be some variation between the states on what they consider to be a prior contact that would disqualify a taxpayer for voluntary disclosure relief. 

Russ:  When does it make sense to use the MTC VDA process and when might it make more sense to go through individual states? 

Richard:  Of course, we like to think that it always makes more sense for the taxpayer to use the MTC Program for applying for voluntary disclosure to states that participate in our program, rather than applying directly to those states. But taxpayers certainly have the option of applying directly to the any of the states—even those that participate in the MTC Program. The taxpayer can apply anonymously to the MTC Program. The taxpayer needs to fill out one online application and submit it to us, rather than complete each state’s separate application form. We have a standard agreement form that most of our participating states use, rather than each state having its own agreement form. MTC staff serves as a single point of contact on behalf of the states during the voluntary disclosure process up to the point where MTC staff sends the taxpayer the state-signed agreement.  

Taxpayers can also apply only to one state, using the MTC Program. The application does not necessarily need to include multiple states. When the taxpayer has nexus and back tax liability exposure in multiple states, the taxpayer can choose which of those states it wants to apply to and does not need to apply to all of them at once. The taxpayer could later submit an application to those other states not initially applied to. 

Russ: This is pretty complicated stuff.  And the process assumes a need for anonymity and confidentiality.  Is it correct that VDAs are almost always handled by a tax professional on behalf of a company? 

Richard:  The majority of applicants retain a state and local tax professional to handle the voluntary disclosure application process for them, but we do see some business owners  who handle those responsibilities themselves. Determining the taxes that need to be included, the state and local rates in effect at the time of the transactions, and calculating the back tax liability exposure for current and prior years, as well as completing the state’s registration, return filing and tax payment processes can be significant tasks without professional help. 

As you mentioned, the taxpayer’s application is considered confidential taxpayer information, and MTC staff will provide that only to the state to which the taxpayer has applied. Other states are not made aware that the taxpayer has applied to any particular state. Also, once the taxpayer has submitted the application to the MTC Program, the taxpayer is considered to be “protected” from “discovery” by the state during the processing of the application (assuming the taxpayer is timely and actively pursuing the process). If the taxpayer is discovered by the state during the application process and the taxpayer receives an inquiry from the state concerning the tax type that the taxpayer is seeking voluntary disclosure relief for, that discovery will not affect the taxpayer’s eligibility to follow through and complete the voluntary disclosure process. If the application becomes dormant at some point, then that protection from discovery will be lost.  

Russ:  Once a VDA is signed and the taxpayer’s identity is disclosed to the State, do the agreements remain confidential? 

Richard:  Yes. The agreement itself expressly provides that the state will keep the agreement confidential except in response to an inter-government exchange of information agreement or pursuant to a statutory requirement or lawful order. 

Russ:  How long can a taxpayer expect the VDA process to last? 

Richard:  The pandemic has definitely pressured state tax agencies, leaving fewer resources for processing voluntary disclosure agreements. We are telling applicants to expect that the process could take six months. Some states are faster than others in processing applications. 

Russ:  About a dozen states do not use the MTC process, and giants CA and NY are among them.  Why do these states not use the MTC?  Are there major differences in their programs? 

Richard:  I wish I knew the answer to that question. If I did, we would certainly take action to try to address those reasons and get those states on board with our Program. All states, even our participating states, have their own voluntary disclosure programs to which taxpayers can directly apply, if they choose. We feel that the MTC Program makes the process more efficient for taxpayers applying to multiple states, so the taxpayer can complete one application form, instead of each state’s individual application form, and one standard agreement form can be used for each state agreement, instead of each state developing their own agreement form. Also, MTC staff functions on behalf of the states as a single point of contact during the voluntary disclosure process, up to the point when MTC staff sends to the taxpayer the state-signed agreement with instructions for completing the execution of the agreement, registration, return filing and tax payment directly with that state. 

All of the states’ voluntary disclosure programs are fairly similar: a nonfiler can come forward to the state, register, file returns and pay back taxes (plus interest) to the state for that state’s lookback period, and in return, the state will waive penalties and tax liability owed for periods prior to the lookback period.  

Russ:  It seems an important aspect in considering the use of VDAs is risk management.  Not just whether to do one or more, but what the timing should be.  What are some of the considerations and strategies companies may want to consider in making these decisions? 

Richard:  Proper risk management begins with staying abreast of state and local tax developments that affect multistate businesses. For example, prior to the 2018 Wayfair decision, the rule for sales tax nexus was physical presence: the only state a multistate seller had to worry about registering with and collecting sales tax was the state in which it was physically located. Since that decision, all states have implemented sales tax economic nexus with specific thresholds (sales volume or in some states transaction volume per year) that create economic nexus if exceeded. Thus, within a period of a year or two, a business making retail sales in several states in significant volumes can be exposed to enough back tax liability in multiple states sufficient to threaten that business’s continued existence. First and foremost, then, is staying informed of relevant state and local tax developments. 

Second, the business needs to track its multistate sales and constantly monitor sales and transaction volume, so the business can determine when it may have exceeded a particular state’s economic nexus thresholds, necessitating registration and collection of that state’s sales tax going forward. Businesses must also track where and when they may have physical presence (employees, representatives, inventory or other tangible or real property leased or owned) in a state. 

Ditto the above for income tax liability exposure in multiple states as well. Some states have also enacted economic nexus thresholds for income tax. P.L. 86-272 may offer protection against a state’s income tax for sellers of tangible personal property falling within the scope of protection of that law.  

If a multistate business timely monitors state and local tax developments and tracks its state tax nexus exposure in the states where it is carrying on business activities or making sales, it can register and stay in tax compliance before any significant back tax liability accrues. That would do away with any need to seek voluntary disclosure relief. Depending on its size and resources, the business can accomplish these tasks either with internal staff or by seeking outside professionals. 

Even when multistate nexus and back tax liability exposure has accrued for the business, the sooner it is discovered and acted upon the better, and the easier to resolve through a process such as voluntary disclosure with the states concerned. The MTC Program stands ready to assist, should that need arise. 



Wayfair, Nexus, and Marketplaces: What you need to know

As discussed in our interview with Richard Cram, Marketplace facilitator laws have changed drastically in the years since Wayfair. While that interview addresses the broad issues surrounding changes in Marketplace facilitator laws, we felt it would also be helpful to create a blog that addresses some of the more technical details of these laws and their impact on economic and physical nexus. But first, some clarification on what “Economic” and “Physical” nexus mean:

“Physical Nexus” means you have a physical presence in the state you’re selling products into. This could be an office, warehouse, drop shipper, remote employee, or sales agent. Once you have “Physical Nexus” in a state, you are legally required to collect state and local sales taxes on everything you sell into that state and file a state sales tax return. If you do not have “Physical Nexus” in a state, then you do not have to collect sales tax or file returns in that state UNTIL you have met that state’s “Economic Nexus” threshold.     

“Economic Nexus” is the term for when you have sold more than a specific amount into a state without having physical nexus.  In the wake of the “Wayfair” decision, the majority of states now define “Economic Nexus” in terms of minimum number of transactions or a minimum amount of sales revenues into their state over a 12-month period. 

Each state has their own rules about thresholds, and they vary in regard to what dollar or transaction amount will trigger the rule and which 12-month period should be used in measuring the sales.  Some states will only look at the dollar amount of sales made, some will look at both dollar amounts and transactions period whichever comes first

Once your business meets those criteria, then you officially trigger their legal requirement to both collect and remit sales tax on whatever your company sells into that state and file a sales tax return.

Additionally, the types of sales that count towards threshold vary from state to state.  Many states include all retail sales.  Even if you are selling an exempt product or selling to an exempt entity, your revenues and/or transactions still count towards your annual state threshold levels. Some states, like Arkansas, include only taxable sales while others, like California, include gross sales—both retail and wholesale sales. 

You can learn more about what Marketplaces are in the aforementioned interview with Richard Cram, but generally they are third-party platforms (typically websites) where remote sellers list whatever products and/or services they sell and any interested buyers buy via the marketplace. Naturally, Amazon, Etsy and eBay come to mind immediately, but there are several hundred specialty marketplaces out there…such as minted.com, sellandbuy.com, kidizen.com and poshmark.com to name just a few.

As a result of the Wayfair ruling, these marketplaces become what is known as “the merchant of record” which means they handle the entire transaction on your behalf (calculate the amount your buyer must pay including sales tax and shipping and often add in credit card payment verification.) They are now, by law, also filing a state and local sales tax return of all sales tax made on their platform and will send any collected sales tax funds from your items directly to the state your buyer lives in. You do not have to file or remit taxes they collected for you if something was sold on their site to a buyer who lives in any of the 46 states or DC. 

It is also important to note that, in 24 states and the District of Columbia, sales made through a marketplace facilitator count towards the seller’s threshold. This means determining whether or not your business has met threshold in these states will require you to aggregate any sales you’ve made through marketplaces with those made through your own site.

Specifically, the following 24 states and the District of Columbia now include your sales on marketplaces towards your own individual threshold:

Alaska, California, Connecticut, Washington D.C., Hawaii, Idaho, Iowa, Kentucky, Maryland, Michigan, Minnesota, Nebraska, Nevada, New Jersey, New York, North Carolina, Ohio, Rhode Island, South Carolina, South Dakota, Texas, Vermont, Washington, West Virginia, Wisconsin 

So, if you are selling products through one or more marketplaces, then you will have to combine the sales you make through those marketplaces with any sales you make on your own site to determine if you’ve met the threshold in those states.

If you have any questions do not hesitate to ask…we’re happy to help!

West Virginia: Firearms and Ammunition Tax Exemption

Beginning July 1st, 2021, West Virginia enacted a sales and use tax exemption for small arms and ammunition. The exemption applies to small arms, defined as: “any portable firearm, designed to be carried and operated by a single person, including, but not limited to, rifles, shotguns, pistols, and revolvers, with no barrel greater than an internal diameter of .50 caliber or a shotgun of 10 gauge or smaller.” The exemption also applies to ammunition designed for use in small arms, which includes: any complete shell, round, or cartridge; round, shell, or cartridge components; bullets; projectiles; cartridge cases; primers; caps; and propellants.

The law does not exempt accessories for small arms, such as holsters, cases, scopes, and mounts, nor does it exempt accessories for ammunition, such as ammunition boxes, magazines, and clips.

West Virginia is the only state that collects sales tax to exempt small arms and ammunition entirely, but Mississippi and Louisiana each have annual sales tax holiday weekends for the purchase of firearms.

TaxCloud users will want to use new TICs 90505 (firearms) and 90506 (ammunition) to ensure they get the benefit of this exemption. If you are not a TaxCloud customer, you should consider using TaxCloud or another certified service provider to keep you up to date in the constantly evolving world of sales tax compliance.

Tennessee’s Gun Safety Holiday Begins July 1, 2021

Tennessee has enacted a new year-long sales tax holiday on gun safes and gun safety devices.  According to Tennessee Important Notice No. 21-113, “a ’gun safe’ is a locking container or other enclosure equipped with a padlock, key lock, combination lock, or other locking device that is designed and intended for the secure storage of one or more firearms.” A “gun safety device” is defined as “any integral device to be equipped or installed on a firearm that permits the user to program the firearm to operate only for specified persons designated by the user through computerized locking devices or other means integral to and permanently part of the firearm.”  It appears that many traditional trigger locks may not qualify because of the “permanent” requirement.  The “holiday” runs through June 30, 2022.

Tennessee joins Connecticut, Massachusetts, and New Jersey in exempting both gun safes and gun safety devices.  Washington and Virginia exempt gun safes, but in Virginia’s case the safe must cost $1,500 or less.

TaxCloud can ease the burden of tracking and implementing these special exemptions. For example, we have introduced Taxability Codes 90502, 90503 and 90504 for Gun Safes, Gun Safety Devices and Temporary Gun Safety Devices. Merchants using these codes when submitting line items will then automatically see the results of this holiday.

Wayfair Blogs – Florida

Florida has become one of the latest (and one of the last) sales tax states to join the “Wayfair” club. Beginning on July 1, 2021, remote merchants and marketplace providers will have to collect Florida sales and use tax if they have taxable remote sales in excess of $100,000 in the previous calendar year. Individual remote sellers may exclude sales made through a marketplace.

The law provides that sellers and marketplace facilitators will get amnesty for tax liability, penalty, and interest due on remote sales that occurred before July 1, 2021, if they register with the Department of Revenue before October 1, 2021. If the Department of Revenue could possibly argue that you had nexus under traditional rules, you will want to register before the deadline to avoid any possible issue. TaxCloud can assist merchants and marketplace facilitators to jump through all the necessary hoops. 

The law also allows marketplace facilitators and its marketplace sellers to contractually agree to have the marketplace seller collect the tax if the seller is registered in Florida and notifies the Department of Revenue. This option is only available, however, if the seller (and its related entities and franchises) have gross U.S. sales of more than $1 billion a year.

Changes to Kansas Sales Tax Legislation: July 2021

Many remote sellers and marketplace facilitators will have to start collecting Kansas sales tax beginning July 1, 2021. Senate Bill 50 was originally vetoed by the Governor for reasons unrelated to the Wayfair provisions, but the Kansas legislature recently voted to override the veto.

Sales Tax Changes for Remote Sellers

A seller with no physical presence in the state will have to start collecting tax on sales into Kansas if they have more than $100,000 in “cumulative gross receipts” from sales into Kansas in the current or immediately preceding calendar year. Once the threshold is passed for the current year, the collection obligation is triggered immediately.

Remote sellers will want to carefully monitor their sales so they know when the obligation begins. Moreover, Kansas is a Streamlined Sales Tax member state so the auditing and liability protections granted to retailers using Certified Service Providers, like TaxCloud, are fully available.

Updates to Marketplace Facilitators Tax Collection

Marketplace facilitators are subject to the same tax collection obligation if their sales “of property or services subject to tax,” both on their own account and on behalf of their marketplace sellers, exceed the $100,000 threshold. Marketplace facilitators dealing in short-term rental properties are specifically included. Somewhat unusually, if the Kansas Department of Revenue is satisfied that “substantially all” of a facilitator’s sellers are already collecting the tax, it may waive the facilitator’s collection obligation.

Need help managing your sales tax obligations? Get in touch here.

Streamlined Sales Tax Audits – Extra Help For The Merchant

Retailers are facing new obligations for collecting state sales taxes (State Sales Taxes- Where do I need to collect?). As these obligations expand, you may be worried about your potential liability associated with charging, collecting and remitting these taxes. Worse, what happens if I get audited? This article will discuss how state audits work in this new world of sales tax administration.  

How a state sales tax audit would work depends primarily on three things: 1) do I have a physical presence in the state, 2) does the state that is conducting the audit provide special protections and processes for retail audits, and 3) am I using a state certified software provider, such as TaxCloud, to manage my sales tax compliance?  

Physical Presence- in a state where you have a presence (nexus in tax terminology) a state may compel you to collect their sales tax and may audit you at any time. The state will generally contact you directly with compliance questions or for the purposes of an audit. There are many things you can do to prepare for a possible audit and to manage the process if you do get audited (Direct Audits – What to know). 

If you do not have a physical presence in a state, state audit procedures can differ.  

State Provided Liability Protections- the 24 Streamlined Sales Tax states (List of Streamlined States) and the State of Pennsylvania have adopted protections that significantly lessen the audit risk for remote retailers (a retailer making sales into a state where they have no physical presence).  

  • These states provide liability relief for collecting the incorrect amount of tax if the error was the result of reliance on incorrect data provided by the state. Information provided by these states includes the taxability of certain products, rate information covering all state and local jurisdictions, and address data that assigns individual street addresses to the correct taxing jurisdictions. 
  • They also provide liability relief for the tax calculations made by TaxCloud (see discussion below).  

The remaining states with a sales tax provide varying levels of information and liability relief related to the collection of sales taxes. TaxCloud can provide additional information about collecting sales tax in these states.  

Using TaxCloud’s “Certified “ Software- the 24 Streamlined Sales Tax states (List of Streamlined States) and the State of Pennsylvania have also certified TaxCloud’s tax management software and provide additional liability protections for retailers using our services.  

  • Each of these states have tested and certified our tax compliance software and provide protections if the system returns an incorrect tax amount. Our system utilizes Taxability Information Codes (TICs) which group products into categories and apply the tax treatment of each category by state (TaxCloud TICs). 
  • TaxCloud utilizes state provided rate, jurisdiction, and taxability information to take advantage of the liability relief available for the use of state provided data. 
  • The Streamlined States have adopted a uniform standard for what constitutes a physical presence for the purposes of making collection services free for remote merchants. (Explanation of Streamlined Services).  These services include audit support. 

Direct Audits – What to know.

Retailers with new obligations to collect sales taxes (State Sales Taxes – Where to collect) worry about their potential liability if they collect the wrong tax amount. They are concerned about their audit risk and are looking for ways to lessen their potential exposure. This exposure can differ significantly depending on the laws of the individual states you are collecting for, your sales or other activities in that state, and how you decide to meet your collection obligation (Streamlined Sales Tax Audits – Extra Help For The Merchant).  

In states where you do not have a physical presence, using TaxCloud can substantially reduce your audit risk. We do all the collection and remittances for you, so the states will be looking to us to make sure your returns are accurate and complete on your remote sales. 

In states where you have a store or other physical presence the state may select you for an on-site audit, which may or may not cover all the taxes in the state. The notes below can help you ace an on-site audit. 

Sales Tax is Complicated-  Rules, taxability, rates, definitions, exemptions, and forms vary tremendously across the sales tax states. And while the Streamlined Sales Tax states have made significant simplifications and standardizations, they are still far from uniform. If you are selected for an audit by a state where you have a physical presence, you will do yourself a favor by learning how that state’s sales tax regimen generally applies to your business in advance of the audit. At the end of this blog are some resources you can use for that purpose. 

Being Selected for Audit-  Being selected for an audit does not feel like winning the lottery. But it does not have to be the fear inspiring event and messy, time crunching distraction some small businesses experience. With some advance preparation and the correct frame of mind your business can come through an audit unscathed.   

Be Prepared-  The best time to prepare for an audit is during the ordinary course of your business operations, not after you get a letter telling you your business has been selected. Yes, it will take some of the time you could devote to other activities for your business. But preparing for (and learning from) an audit will also help you keep your business records in order and give you insurance and assurance you have the processes and controls in place to be fully compliant with sales tax laws and regulations for the future. 

Why Me? – It is not worth worrying too much about why your business was selected for audit. Every state has its own methods and reasons for audit selection, but they often include regular audit cycles for some businesses, targeting by industry where past audits show compliance could be improved, checks on compliance with recent changes to nexus or other statutes, and (usually) a certain number of random audits just to keep everybody honest. 

Entrance Conference-  On site audits usually start with an entrance conference. The auditor will discuss the process with you and how they plan to proceed. Be sure to ask any questions about any aspect of the process you do not understand. Where, when, and how the auditor will work will be covered. Be clear on who you have designated to assist the auditor besides yourself and introduce them. It is entirely appropriate for other employees to respond to an auditor’s question by saying “Let me get Sally or Joe to help you with that.” 

The Auditor Is Not Your friend.  She Is Not Your Enemy Either- The auditor is a professional employed by the state with an important job to do. The auditor is making sure the laws regarding taxes are properly implemented, and that businesses are complying with their obligations under state law to collect and remit the correct amount of tax. But it is true that people drawn to careers in audit generally like order, numbers that match where they should, and for people and businesses to follow the rules. That’s just their nature. You may be focused on the creative aspects of your business, but the auditor is going to be focused on your business records. That being said, most auditors are reasonable people, and they will not ding you for the occasional minor error in record keeping. 

Work Space and Treatment-  Be courteous. To the extent you can, provide a quiet, orderly space away from your business operations. The combination of a decent working space and readily accessible records will make the audit go more quickly, eliminating frustrations for the auditor, and minimizing the time you have to spend on the audit and away from improving your bottom line. Most states have restrictions on what an auditor can accept while at your business. The safest bet is to stick to offering water and coffee. Soft drinks or other treats are fine if they are freely available to all your employees. Do not be offended if the auditor refuses everything. Don’t offer to take them to lunch, even if you would do so for other visitors to your company.  

General Business Documents- The auditor may want to see your general ledger and journal entries, bank statements, federal tax returns, and any other state or local tax returns. Having these ready when she walks through the door will get you off to a quick and smooth start, and help establish a good relationship, which can be very useful in the rest of the audit.  

When the auditor asks for additional documents, supply them as quickly as you reasonably can. Don’t be afraid to ask questions. It’s important for you to understand the reasons documents are being requested. Understanding what is going on in the audit will enable you to be responsive, and occasionally suggest better or more representative alternatives to the request. 

Sales and Use Tax Documents-  The auditor will want to see sales tax returns, use tax returns, invoices for both sales and purchases, resale certificates, exemption certificates, and shipping records. But she may not want to see all of them. Have them organized so you can readily pull what she needs and wants to see. Have a process in place to make sure exemption and resale certificates are properly executed and stored. Make sure the product descriptions on your invoices are specific enough for the auditor to be certain of what was sold (e.g. Was Goldfinger a book, a DVD, a soundtrack, or a download?).

Sampling-  It’s pretty unlikely an auditor is going to want to look at every sales tax record you have. She is likely to use various sampling methods in order to arrive at an approximation of any liability and to expedite completion of the audit. This can be a good thing and save everyone time if the sampling results in an accurate representation of your overall sales, exempt sales, sales for resale, and merchandise retained for your own business use, and overall liability. It can, of course, be a bad thing if the result is not a good representation, potentially leaving you with more liability than you actually have. Discuss any sampling with your auditor in advance. It’s easier to prevent a non-representative sample than it is to correct one after the auditor has done the work. Make sure you understand what the auditor is looking for. 

Make sure the auditor understands the nature of your business. If your business is highly seasonal, that needs to be reflected in the sampling. If it is not, that needs to be reflected in the sampling. If you have more sales for resale during some periods, and more direct retail sales in others, that needs to be reflected in the sampling. If you sell major equipment during certain months and not in others, that needs to be fairly represented. You may want to consult with your accountant or other tax professional and have them assist you with any discussions about sampling. 

The auditor may want to specifically examine transactions over a certain dollar threshold and apply sampling to the remainder of your transactions. This is usually a good idea if you have occasional big ticket sales because it tends to avoid distortions that could otherwise result from a flawed sample. You may want to suggest this if the auditor doesn’t. 

Statute of Limitations Waiver- It is common for an auditor to ask you to extend the statute of limitations by signing a waiver for a specific period, especially if the audit will occur near the limitation. With a signed waiver the auditor does not have to rush the audit to avoid missing a tax year and will be less likely to include items that could have been resolved with some discussion. You will probably have more time to pull records and prepare for the audit. However, any interest on liability will continue to accrue. Make sure the waiver is both reasonable and for a limited period of time. You don’t need to sign a waiver a year in advance and you don’t want to keep the statute of limitations open indefinitely. 

Materiality-  If errors in your records are minor and involve negligible amounts an auditor may have the ability to not assess your business for them and provide future reporting instructions instead. Rest assured though, if you come up for audit again and the future reporting instructions have not been followed, you will be assessed. 

Penalties and Interest-  When your audit is complete you will owe interest on any unpaid taxes. You may also be assessed a penalty on any unpaid taxes. Auditors sometimes have the ability to waive penalties, and will often do so if they find the errors understandable and not a result of negligence. It doesn’t hurt to ask. Interest is a different story. Most states will not allow an auditor to waive interest. 

Exit Conference-  The auditor will explain what was found and the nature of the assessment, if any. You may be asked to accept the finding to avoid further interest and penalties. That’s fine if you fully understand and agree with the changes, but if you need more time or want to consult an advisor, you have the right to do so. Make sure you fully understand your appeal rights and what deadlines you have. 

How to appeal an audit assessment-  As noted above, it’s very important to understand your appeal rights. The specific requirements and deadlines vary greatly from state to state. States typically require a written protest within a relatively short period of time. It is important that you understand the specific deadlines and requirements of your state. Calendar the deadline as soon as you get the audit report. You could lose your appeal rights if you do not file a written protest by the deadline that meets the state’s requirements. 

Next Time-  You may be tempted to quickly put the audit behind you once you’ve been given the results, especially if they were not too bad. This is exactly the time to set yourself up for a successful audit the next time around with this or any other state. Note any problems that were discovered in your records and figure out ways to improve your business practices to avoid them. And then implement those improvements. Generally speaking, any improvements you make that will help you in audit will also help you in documenting and understanding your own business. 

Audit Resources-  Depending on the nature and size of your business, and how complicated the state tax laws are in the state auditing your business, you may need to do more or less research on your compliance. Below are some of the resources you can use. 

Individual States-  Many states have publications geared to a general understanding of particular tax topics. Contact the state that plans to audit you for general information about how their sales tax works, and for any specific questions you may have based on your business and clientele. 

Streamlined Sales Tax Governing Board-  The 24 member states supply information about taxability and administrative practices in easily accessible matrices. You can access this information at here.

Tax Professionals-  If you anticipate your sales tax audit will be pretty straightforward and you are prepared for it you probably don’t need to incur the expense of having an accountant or other tax professional assist you with the audit. If you anticipate your audit could be a complicated and sizable undertaking you need assistance with, then having a tax professional assist you during the process may make the most sense for you, especially if your time is more valuable spent elsewhere. 

TaxCloud-  If you are a TaxCloud client we may be able to assist you. While we do not provide accounting or legal services and therefore can’t officially represent you in an audit, we can provide auditors with the data they need in electronic format in a timely and organized manner.  And the fact that you are using our services means there won’t be many errors to find in the first place.