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How the Supreme Court’s State Tax Ruling Impacts You

President Trump tweeted his approval for a Supreme Court ruling last Thursday, saying it’s a “big victory for fairness and for our country. Great victory for consumers and retailers.”

Get ready, you are probably going to be paying a little bit more for that eBay purchase. If you run an online store, you might have just inherited a virtual state tax headache (no pun intended).
2018 State Sales Tax Ruling

What Just Happened?

In a decision with potentially enormous consequences, the Supreme Court in a close landmark decision, ruled 5-4 on Thursday (June 21,2018) to allow states to collect sales tax from online and out-of-state retailers, regardless if they have a physical presence in the state. In the majority opinion, Justice Anthony Kennedy, said that times have changed to such a degree that online retailers no longer qualify for “an arbitrary advantage over their competitors who collect state sales taxes” by claiming they don’t have a physical presence in a state which came from outdated rulings dating back to mail-order days.

The ruling allowing states to tax e-commerce providers outside their state borders will be almost guaranteed to create added headaches for companies handling online transactions, but the bright side is that it may help brick-and-mortar retail businesses.

Aren’t States Already Collecting Online Tax?

Currently, forty five states collect sales tax. The only states that don’t have sales tax are: Alaska, Delaware, Montana, New Hampshire, and Oregon. All other states have some sort of sales tax and the tax rate for each state can differ, even down to the county level.

This is what makes it hard for online merchants to track it by hand or even in a spreadsheet. Major e-commerce sites like Amazon have already been adding state sales tax into consumers’ purchases, and is equipped to deal with the complexity, while other smaller online merchants will have to adapt to the changes.

Who’s Impacted

In short, everyone. We are all going to be paying a little more for online purchases. With millions of American online sellers be impacted the most by this ruling, it’s going to take a while to measure the entire scope of this ruling.

There are well over 10,000 state, city and local sales-tax jurisdictions in the country, and the responsibility for figuring out how much tax to collect and where to send it ultimately will be the responsibility of the online sellers.

Online sellers are among a growing segment of Americans, who either supplement their income or rely on internet sales as their sole source of income. This is made possible from digital platforms such as Etsy, Shopify, eBay and even WordPress.

It’s still unclear on the specifics including if the state where the server is located that hosts the website will be able to get their share as well. These details will have to be sorted out and may prompt Congress to introduce new legislation for national standards around interstate commerce to avoid a patchwork of state sales tax laws that can be difficult for retailers (especially small businesses) to navigate. Many major online retailers are looking to Congress to clarify the ruling with a framework to defend small businesses and provide uniformity and consistency. We can expect an overhaul on unifying e-commerce for all 50 states. It’s going to take time, is not going to be fixed over night and it’s not going to be easy.

Follow the Money

In a 2017 federal report to Congress, it was estimated that state and local governments were missing out on $8 to $13 billion in tax revenue from online retailers. Retail e-commerce sales in the United States in 2016 was $322 billion. In 2017, online consumers pushed e-commerce sales to $452 billion, which was about 9% of all retail sales with the online giant Amazon reporting $54.5 billion in e-retail sales of physical goods in 2017.

The ruling overturns a prior 1992 court decision, Quill Corp vs. North Dakota, which established the “physical presence” standard for sales tax. Approximately 2% of Americans had internet access in 1992 compared to nearly 90% today. Those of us old enough will remember that in the early days of e-commerce, purchasers of items over the internet paid NO sales tax at all. Since the advent of the internet, the dynamics of retail industry have evolved and this is just another of those evolutions.

What Can I Do?

Don’t panic, there are a several software companies that are available if you plan on tracking it yourself. The three main software providers: TaxJar, Taxify, and Avalara. TaxJar is built for small to medium sized companies, and we have found it to be the better software for our e-commerce clients. Taxify and Avalara are built to support the larger companies and with that said, also have a larger price-tag to go with it.

If the thought of tracking your own sales tax is too daunting or you just don’t have the time to do so, we would recommend that you seek out an accounting firm that you feel the most comfortable with that specializes in sales tax (or give us a call at 888-620-0770).

Like all things in the e-commerce industry, sales tax laws will continue to evolve and it is important as an e-commerce entrepreneur to keep up to date on the new rulings and laws.

Surviving Tax Season: A Guide for Small Business Owners

We are nearing the end of tax season, which has some small business owners scrambling to finish the details before the upcoming deadline. Tax season is a necessary part of business ownership, but it can be a stressful experience if you don’t have the paperwork ready for your accountant. Whether you are relieved to be done with your tax filing or you are working hard to wrap up the details, there are a few things that you can do to survive this stressful time of year.

Why is Tax Season So Stressful?

Many business owners spend hours sorting through paperwork, trying to make sense of the transactions for the year. It is common for bookkeeping and accounting practices to get pushed to the backburner, resulting in a situation where there isn’t an organized log of the receipts and invoices. Not only do you need to sort through the paperwork, but everything needs to be categorized and recorded. The paperwork needs to be kept on file in case documentation needs to be provided for an audit in the future.

Stress often comes from the long hours of sorting through transactions and trying to remember everything that needs to be documented. At the same time, it is common to feel stress about the tax bills that need to be paid.

During this time of year, you need to keep up with the regular business activities and juggle the extra work that is needed for tax preparation at the same time. Stress levels go up because of the extra time that is needed to get everything done before the looming deadline.

Managing Your Stress During Tax Season

Just because it is a stressful time of year, doesn’t mean that you need to bear the burden without managing your stress. Here are a few tips to help you manage tax season:

  1. Be Aware of the Deadlines: Knowing the deadlines will ensure that you don’t miss the most important days of the tax season. If you miss a deadline, then your stress levels might go up even more because of the extra fees and interest costs that will need to be paid for a late filing. The normal income tax filing deadline is April 15th. But, this year the 15th falls on a weekend, which means that the IRS changed the deadline to make it a business day. In 2018, the final day for tax filing is April 17th.
  2. Create a Tax Schedule: In addition to the tax filing date in April, there are other deadlines throughout the year for quarterly taxes, Medicare, Social Security, and more. Tax season is a good time of year to assess your schedule and make sure that you are staying ahead of everything else. If you miss these other deadlines during the year, then your stress levels will go up when the work is being done during tax season you and find out that there are extra payments that need to be met. Right now is the perfect opportunity to create a schedule that you can follow through the rest of the year. Your accountant will provide recommendations for the best schedule that will meet your needs.
  3. Make it a Priority: As you are working through the regular activities of running a business, it is easy to let your tax preparations fall to the bottom of the to-do list. When you are dealing with employees and customers in face-to-face conversations, the busy work often gets pushed aside. Taxes should be a high priority so that you don’t miss the deadline. So, you should set aside time in your schedule to focus on the tax preparations that are needed. Even if you have a good accounting team to help, there are still a few things that you need to do to prepare the paperwork for the filing. Your accountant will be waiting for you to supply the necessary information.
  4. Provide Organized Information: It’s not going to work if you try to hand your accountant a shoebox full of receipts. When you have a year of transactions, you need to be able to categorize the spending and break everything down so that the accountant can understand the numbers. Organizing the information is essential to ensure that you don’t miss important details that need to be included in the tax filing. The easiest method is to keep all of your tax information in one location, such as an online software system that is used throughout the year to track your spending. In addition to providing the details for your accountant, you also need to maintain these records in case the IRS asks for additional information.
  5. Separate Business and Personal Transactions: It is easy to let the business and personal transactions get mixed together, especially when you are starting a home-based business. The IRS is strict about the mingling of business and personal transactions. If you don’t already have a good strategy, right now is the time to separate your business accounts and personal accounts. Set up a business credit card so that you can keep business-related expenses separate from your personal
  6. Look for More Deductibles: Are you feeling the stress of a high tax bill this year? If you are looking for ways to come up with the cash to pay the bill, then you might talk to your accounting team to identify additional deductibles that can be calculated into your return. Some of the hidden deductibles can make a big difference to the amount of money that you need to pay. For example, you can write off expenses for new computer equipment, business travel, furniture, meals, insurance costs, employee expenses and more. Don’t overlook a penny that was spent on business activities. If the money was spent to support your business efforts, then it can be counted as a deductible on your tax return. Talk to your accounting team if you have questions about whether specific expenses qualify as tax write-offs.
  7. Leverage Online Tools: Don’t make the mistake of trying to calculate your business expenses with a hand-written ledger. There are many tools available that can be used to calculate your income and expenses. You should talk to your accountant for recommendations about the right tools that should be used for your industry. It might be too late to implement these tools for the current tax filing. But, you shouldn’t overlook the benefits of using software tools to help you prepare for next year.
  8. Talk to an Accountant: Whether you have a home-based business or a start-up with a physical location, it can be a big mistake to attempt a DIY tax filing. Some people are tempted to file taxes without professional assistance because they are looking for ways to save money. A tax preparation fee might feel unnecessary. But, the truth is that this service can be an essential way to help you avoid problems in the future. You will reduce your stress levels by passing the bulk of the work to a professional team, allowing you to focus on other important business tasks instead. Plus, you can trust in their expertise to ensure that you don’t miss potential write-offs. Many business owners find that tax preparation services are a great investment because of the reduced tax burden that needs to be paid.

Staying Ahead of Tax Preparations

Even though you can’t turn back the clock to change how you prepared for taxes this year, you can set a few goals to be better prepared next year. Right now is the time to find the motivation to make a change. Consider the stress levels that you are experiencing during this tax season. Then, imagine what it will be like to file taxes next year if you already have the information organized and ready for your accounting team.

You don’t have to implement this system without assistance. Hiring a year-long bookkeeping and accounting service is one of the best investments that you can make for your company. You should be talking to your accountant throughout the year, instead of waiting for tax time to have a few brief conversations. Consistent support from a financial professional is one of the most effective ways that you can stay ahead of your business finances and minimize the stress that you experience when it is time to file your taxes each year.

Ongoing accounting services give you the insights and tools that are needed to maximize your deductions. These transactions are tracked each day, week, and month. Then, you can run a few easy reports when it is time to calculate the numbers for your tax filing.

Do you have questions about filing business taxes? Do you need help with your filing? Our team at Easier Accounting is always here to assist. We specialize in small business accounting, giving you access to the expertise that you need to support your business efforts. Call to learn more about the ways that we can help throughout the year: (888) 620-0770