Sales Tax Changes for Direct Sellers

I hoped that 2017 would bring some clarity to the issue of sales tax for direct selling companies.Sales tax is very complicated.

Alas, my hopes have been dashed!

If we see any resolution to the sales tax issues for direct sellers in 2017, companies selling over $1,000,000 annually in any state other than their home state should be prepared to take immediate action to comply with new sales tax laws (in a couple of states, the threshold is as low as $50K in the previous 12 months).

In general, companies selling under the exemption thresholds above should be prepared, as well, but I don’t believe that immediate action is necessary.  Nonetheless, if you haven’t discussed with your CPA your plans to handle sales tax in those states where you have active consultants, I recommend that you have that discussion in the first quarter of 2017.

For a direct selling small businesses (under $7.5 Million annually, according to the SBA*), full compliance with the complex sales and use tax laws is impossible.  I believe that we’ll see some exceptions for small businesses.  Most small businesses would have to spend more on tax collection, reporting and remittance than they’re likely to collect!  Sales tax compliance is very, very expensive.  If full compliance is the expectation for small businesses, we won’t have any small businesses.

So, what can we do now?

  1. Don’t panic — You’re not alone.  Many other business owners and small businesses are facing the same challenges.  No matter which direction the sales tax laws take, we can expect some allowances for small businesses.
  2. Talk with your CPA — Your CPA can help guide your sales tax policies.  Be aware that not all CPAs have experience with our industry and our unique sales methods.  If your CPA can’t advise you on how to handle your remote sellers, you may need to find another tax professional who can help.
  3. Learn about the pending legislation — This stuff may be difficult to digest, partly because it deals with an issue that most of us find “painful”, but as a company owner or executive, you are ultimately responsible should your company get audited.
  4. Don’t panic — Yeah, it’s here again as a reminder that while we expect to see some changes this year, they won’t happen overnight, and if you keep informed, you’ll be ready when it’s time to take action.

You probably know that a number of 3rd party tax software companies work with your direct sales software system.  We have integrations with two tax software companies, Avalara and Strike Iron.  These services are very expensive, and they’re likely overkill for a young company with limited resources, but you may want to talk with several companies and see what they do and what they charge.  Of course Easy Party Plan has a means to handle sales tax, and our customers who use this function are responsible for keeping the rates up to date.

You may want to take cues from other direct selling companies.  If you look at other direct selling companies, you’ll see that those with $50 million or more in annual sales are using a third-party tax service (you can tell if you go through the checkout process and the system gives you a response to confirm your shipping address).  Smaller companies may be using a third-party tax service, but I doubt that you’ll see many companies with under $10 million in annual revenue paying for a third-party to handle their sales tax calculation, filing, and remittance.  I could be wrong.

I do a lot of personal shopping online, and many of the big companies that don’t have a brick-and-mortar presence in my state aren’t charging sales tax.  These companies probably don’t have independent representatives in other states, like we do in direct sales, but almost all of them have affiliates who promote the companies and their products through the affiliates’ websites.  I was surprised this holiday season that most of my online orders didn’t charge sales tax.

Again, your CPA can help you prepare for the inevitable very likely changes that we’ll soon see.

Avalara, one of the largest third-party sales tax software companies, recently published a very informative guide summarizing the sales and use tax changes that we may see this year.  For your convenience, you can download their guide here.  Download it, read it, and don’t panic!

I’ve written about and posted additional resources about sales tax that you’ll find on our website on the “Resources” tab.  Get informed, be prepared, and don’t panic!

We'll get through this together.No matter what happens with sales tax laws, we’ll get through it together.  Please let me know if you’d like to talk about your specific situation.  I’m not a tax expert, but I’ve been watching sales tax legislation and enforcement for years, and I can guide you to a good solution for your company.  Remember that your CPA is your ultimate tax guide.  If you need help beyond what your CPA can provide, let me know and I’ll do my best to point you in the right direction.

 

 

*”Table of Small Business Size Standards Matched to North American Industry Classification System Codes,” U.S. Small Business Administration, February 26, 2016, page 25, #454390 — Other Direct Selling Establishments.

 

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