september2021 - 6

COVER STORY
ACCOUNTING FIRMS NEED TO ACT ON
By Isaac M. O'Bannon
A TSUNAMI OF trouble is on the way for millions
of businesses, and most don't know it's coming.
As we hit the 3-year anniversary of Wayfair,
the Supreme Court ruling that forever
changed sales taxes, a new survey shows that
millions of small businesses in the U.S. aren't
complying with state sales tax laws.
According to the 2021 Accountants Confidence
Report (https://tinyurl.com/td2wzedc),
which was commissioned by CPA Trendlines
and Avalara, accounting and tax pros are
confident that only a little more than 2% of
their business clients are fully compliant with
interstate tax issues. While 51.4% think their
clients are compliant with " some " or " most "
sale tax reporting requirements, that is hardly
consolation. Imagine if your business clients
were only halfway in compliance with their
income tax reporting.
One of the greatest challenges for these
businesses is that, unlike with income taxes,
they are mostly going it alone on interstate
sales tax reporting. This is because even
most tax advisors are under-informed and
unequipped to help their clients because of
the complexity and diversity of reporting
requirements to the various states.
As a result of the Wayfair ruling, businesses
selling sales-taxed products to customers
in any state can be required to collect and
remit sales taxes to that state. That means
a company in Oklahoma selling auto parts
to a customer in South Dakota has to report
to South Dakota. And a clothing retailer in
Washington state has to report its sales to
Florida customers and remit the taxes to
Florida. Compounding the complexity, each
state sets its own rules on what is taxable,
what rate it is taxed at, and how much sales
it takes to require sales tax reporting.
As the world emerges from the COVID-19
shutdowns, these new reporting obligations
are going to be a shock to U.S. businesses
trying to rebound their sales. And not only
U.S. businesses face these requirements: Any
business, domestic or international, selling
into the various states is required to be in
compliance. During the pandemic, many businesses
moved into, or expanded, their online
sales, which further increases their risk of
non-compliance.
While businesses of all sizes face this
risk, smaller entities with no guidance may
have the most exposure, according to Sona
Akmakjian, head of global accounting partnerships
for Avalara.
" A lack of knowledge and the diversity of
state tax rules and thresholds, is making it
very difficult for businesses to be in compliance, "
she said. " Most don't know if they are in
Top Trends in State Sales Taxes and Policies
by Gail Cole
C
hange is afoot as we come to the end of 2021.
As COVID-19 relaxes its stranglehold on the
United States, states are considering how tax
policies can be adjusted to help mitigate the worst
effects of future crises. Across the Atlantic, the
European Union is preparing to launch a sweeping
ecommerce tax package to reduce tax evasion and
level the playing field for local businesses.
States reopen and reconsider COVID tax relief policies
The effectiveness of COVID-19 vaccines encouraged even
the most cautious states to reopen at the beginning of summer,
with retail sales showing strong signs of a rebound.
However, as these states started to lift restrictions for vaccinated
individuals and businesses, some states reimposed
mask mandates as the Delta variant emerged.
As some businesses put an end to work-from-home orders,
states are rescinding certain COVID-19 tax relief measures.
For example, Massachusetts maintains nonresidents who
worked in the Bay State prior to the start of the COVID-19
pandemic owe Massachusetts income tax on wages earned
while working from home in another state.
States examine benefits of broadening the tax base
With business largely back to normal and Americans
eagerly hitting the road, lawmakers and tax officials
throughout the country are considering how different tax
strategies could help minimize the negative effects of any
future events.
For example, Hawaii is looking into policies that could
encourage businesses to relocate to the Aloha State, which
is so reliant on tourism it suffered greatly during the COVID19
lockdown. Vermont recently voted to extend a program
that pays people to move to Vermont, an option open to
more people now that many employers see the long-term
benefits of a remote workforce.
Broadening the sales tax base is another option, in
Vermont and in other states. For example, the Vermont Tax
6 SEPTEMBER 2021 ■ www.CPAPracticeAdvisor.com
Structure Commission has determined that " the broader
the [sales tax] base, the less likely a particular crisis is to
have a disproportionate negative effect. " Of course, this
can be a hard sell; Louisiana and Nebraska are among
the states that unsuccessfully tried to expand sales tax
to services this spring.
Nonetheless, similar efforts in other states may prove
more successful as economic conditions improve. Indeed
Maryland was able to enact the nation's first tax on digital
advertising services, and several other states are trying to
do the same. This is a contentious issue in the U.S. - Maryland's
new tax has already been challenged - but globally
the trend is moving toward taxation. Digital services are
already subject to tax in many other countries, including
France and India.
Taxing other digital products and services, especially
streamed content, is under consideration in Kansas,
Wyoming, and several other states. Meanwhile, Colorado,
Georgia, and Maryland are among the states that recently
https://www.tinyurl.com/td2wzedc http://www.CPAPracticeAdvisor.com
september2021

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