With this year’s unique environment, all states are projecting tax revenue budget shortfalls. For the fiscal year 2020, the following states are estimating a budget deficit: California $54 billion, New York $4 billion, New Jersey $2.8 billion, Illinois $2.7 billion, and most other states projections exceed hundreds of millions of dollars of lost state and local tax revenue.
The boom in remote working and shopping during COVID-19 has provided states with the opportunity for increased tax revenues. To make up for budget shortfalls, states’ Department of Revenue will identify audit targets based upon “economic nexus” (exposure). On June 21, 2018, the Supreme Court released its decision in South Dakota v. Wayfair. Over the past two years, 43 of the 45 states that charge sales tax has enacted Wayfair “economic nexus”. Over 75% of those states have adopted the minimum $100,000 sales threshold. Therefore, the bar has been set very low, and many corporate taxpayers are unaware of the negative impact of “economic nexus” even though the taxpayer does not have a physical presence in-state. If the taxpayer exceeds a dollar amount of sales threshold for the previous or current calendar year, they will have “economic nexus” and will be liable for the collection of sales and use tax.
To be proactive and understand where businesses are concerning “economic nexus”, FI-Group offers a Wayfair risk analysis for taxpayers. The goal of the Wayfair risk analysis is to minimize your risk upon audit, and maximize margins by reducing the exposure of sales tax and use tax liability, and reducing penalty and interest charges as a result of the audit risk. A detailed spreadsheet will be provided reporting the current status of Wayfair based upon sales by state for 2019 and 2020.
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