May 2024: Sales and Use Tax Essentials

Do you assume that because your organization is a business, everything you purchase or sell is tax-exempt? Think again! Yes, there are goods and services you deal in that are likely exempt from sales tax, but there are almost certainly situations in which sales tax needs to be remitted — for instance, when your company purchases products for its own use, like computers or office supplies. If the seller doesn’t remit sales tax when required, the buyer must remit it as use tax.

This month’s Insider explores some of the complexities of sales and use tax.

This Month’s Quick Take:

In 2018, the U.S. Supreme Court ruled in the case of South Dakota v. Wayfair, Inc., that a business — in this case, the large online furniture retailer Wayfair — did not require a physical presence in a state to be obligated to collect and pay sales tax for goods sold in that state. This ruling served to protect brick-and-mortar retailers in states that charge sales tax from being put at an unfair advantage by online sellers.

Since then, “nexus” — a connection between a state and a seller — is no longer exclusively defined by physical presence. However, each state that charges sales tax defines nexus differently and the regulations change frequently, creating a lot of complexity. Thus, it’s important for sellers to keep up with the rules for individual states in which they do business.

Sales and Use Tax Special Report

IOFM recently interviewed Diane Yetter, sales and use tax expert, about the challenges of compliance and how AP and AR must work together to accomplish it. States are now turning away from civil penalties exclusively, and in some cases are levying criminal charges.

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Sales Tax Info on New Vendors

We asked the IOFM Advisory Panelists how they handle collection of sales tax information when enrolling new vendors. Their responses varied, but one thing stands out: Taxability is tied to what’s being purchased and what it’s used for, rather than to specific vendors.

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FREE WEBINAR: Nexus Implication for Procurement Processes

It's been six years since the landmark U.S. Supreme Court decision of South Dakota v. Wayfair, which expanded the definition of nexus for out-of-state businesses from only a physical presence to also include economic presence. Join IOFM and Diane Yetter on May 13th to hear the latest on the state nexus rules as well as what types of purchases may be subject to use tax.

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Updates and Resources

It’s complicated, but IOFM offers some useful links for researching and maintaining compliance with sales and use tax rates, updates and trends. For example, some states are opting to use reporting thresholds; others are considering making key changes to increase revenue.

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MEMBER WEBINAR: An Introduction to 1099 State Reporting

Direct state reporting of 1099 forms is a crucial aspect of tax compliance for businesses operating in the United States. And noncompliance with state-specific regulations can be costly. Join IOFM and Sovos on May 16th for this Member-exclusive Live Compliance Webinar where you will learn the basics of 1099 state reporting.

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