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Robert Peters, Managing Director and leader of Duff & Phelps’ Sales and Use Tax practice was recently featured in a Bloomberg Tax article titled, “States Said to Be ‘Gearing Up’ for Remote Seller Tax Audits.” The U.S. Supreme Court’s groundbreaking 2018 ruling in South Dakota v. Wayfair permitted states to impose tax collection duties on remote retailers based on economic activity in a state rather than physical presence. Most of the 45 sales tax states have enacted laws requiring remote sellers and marketplace facilitators to collect and remit taxes. During our recent webinar on sales tax considerations in today’s economic climate, Bob says the audit grace period is over for remote sellers.
In recent months, state revenue agencies have pivoted away from guidance and education in favor of settling previous sales tax audits and initiating new ones under their Wayfair-inspired economic nexus requirements. Bob said agencies are motivated in part by the need for revenue as the pandemic rips holes in state budgets.
Larger states are getting particularly aggressive with their use of artificial intelligence and data sets from third-party vendors to identify remote sellers that have exceeded economic nexus thresholds. Bob said auditors can access data showing the businesses selling into their states, together with rough sales volume estimates.
“It’s not really a difficult task,” he said. “So they know whether you’re a company that is remotely selling into the state and the frequency of the actual transactions.”
The states are also pursuing “pure blocking and tackling” audits on common compliance problems, Bob added.
Many audits focus on compliance with state exemption certificate rules, applicable when a seller makes a sale of taxable goods and doesn’t collect sales tax in the jurisdiction. While transactions exempting tax duties on sales for resale are common, Bob said taxpayers often fail to maintain their exemption certificates for inspection when a state auditor comes knocking, a mistake that could expose them to significant liabilities.
Bloomberg Tax subscribers can access the full article here.