Sandra York, CPA
Uncertainty still exists about what businesses should expect after the Wayfair decision
The recent Wayfair decision has sent states and businesses alike scrambling to make sense of what taxes are owed in which jurisdictions. Many business owners and officers may be tempted to backburner the issue. After all, you have enough other fires to put out. You’ll get to sales tax compliance when you get to it.
Not so fast. Remember that sales tax, much like employment tax, is considered a “trust fund” transaction. Sales tax isn’t additional revenue that is billed to your customer. Rather, it’s money that you are deemed to hold as a trustee of the state. You are responsible for collecting and remitting the appropriate sales tax. If you fail to do either, it’s not just the company’s assets on the line. “Responsible Persons” can be held personally liable for any unpaid liability.
Who is Responsible for Charging and Collecting Sales Tax?
Most businesses don’t run into problems by failing to remit the sales tax they collected. The greatest risk arises from failing to charge and collect sales tax on taxable transactions. In the event of a sales tax audit, the company could be assessed the amount of sales tax that it should have collected and remitted, plus penalties and interest. But because of the trustee relationship, that liability could extend to responsible persons. Who are they?
In New York, owners, corporate officers, LLC members, general partners, and any limited partners who actively run the business or who have at least 20% ownership are automatically responsible persons. In addition, the list of responsible persons generally includes anyone who:
- Is actively involved in operating the business on a daily basis,
- Decides which bills are paid,
- Has hiring and firing authority, or
- Has check signing authority.
If the business has the money to settle the sales tax liability, the responsible persons can breathe a sigh of relief. If the business is unable or unwilling to pay, the responsible persons can be held liable. Generally, your directors and officer’s policy will not protect you against this type of omission, so don’t think of that as your fail safe.
Long Term Effects and Impacts of Wayfair
There is still a lot of uncertainty about the long-term effects of Wayfair. Will there be a uniform minimum threshold on either dollar volume or transaction volume? Will there be small business exceptions?
As we wait to see how questions like these are resolved, we recommend starting at the basics: what states are you currently registered in? Are you selling into any states where you are unregistered? What products or services are you selling? Do you have employees or contractors in states other than your home state? Taking stock of your current selling practices is the best first step.
Talk to a Freed Maxick Sales Tax Expert
The sales tax experts at Freed Maxick work with hundreds of US and Canadian companies to help them understand and comply with state and local sales tax requirements. All our experts agree that after the Wayfair decision, sales taxation will become an increasingly complex endeavor.
If you need help understanding how the Wayfair decision affects the sales tax compliance of your business, please contact us here or call the Freed Maxick Tax Team at 716.847.2651 to discuss your situation.