Direct-to-Consumer Alcohol Shippers Will Soon Be Eligible for Full SST Benefitsby
If you have, (or are looking to have) clients in the beverage space, you should know that one of the biggest headaches for direct-to-consumer (DtC) beverage alcohol shippers is managing sales tax obligations.
Unlike most other businesses, DtC shippers are required to collect and remit sales tax in almost every state they sell in—even if they have only $1 worth of sales in a state. This requires DtC shippers to manage the collection and remittance of sales tax across thousands of jurisdictions and dozens of different forms.
Relief for this burden is on the way, however, under the latest Streamlined Sales Tax (SST) agreement signed at the end of August. Wineries and other businesses involved in the DtC alcohol shipping market will soon qualify to receive additional support and protection when managing their sales tax reporting and remittance obligations in SST-member states when using an SST Certified Service Provider (CSP).
Who are DtC Alcohol Shippers and What are Their Tax Obligations?
Like almost every other business, the alcohol industry has moved online over the last two decades. Consumers want the convenience of purchasing online, including the ability to seek out and purchase more products than may be available at their local stores, as well as the chance to interact directly with their favorite producers.
At the same time, producers can establish a national foothold while avoiding many of the onerous rules and restrictions that come with the standard three-tier model of alcohol distribution. As such, most states have adjusted their laws recently to accommodate direct-to-consumer shipping of alcoholic beverages – though state-by-state rules can widely vary.
Wineries enjoy the broadest permissions nationwide, but increasingly, brewers, distillers and retailers can make interstate DtC shipments of their products in a limited number of states. Under the laws that govern DtC shipping are rules that are part and parcel of the alcohol industry, such as licensing and restricting sales to minors.
Central among DtC shipping rules are firm requirements that DtC alcohol shippers collect and remit all taxes that would have applied had the sale occurred in a liquor store in the destination state. For many years, DtC alcohol shippers have had to recognize and manage compliance for their excise and sales tax burdens across all states they ship into.
Long before the South Dakota v. Wayfair ruling, DtC alcohol shippers were dealing with the burdens and complexities that other remote sellers are just now grappling with – only they could not receive the full range of benefits available to other businesses using CSPs to manage their sales tax filings in SST member states.
Why Were DtC Alcohol Shippers Ineligible Under the SST Agreement?
The Streamlined Sales Tax Governing Board is an organization of 24 state governments that have agreed to work together to modernize and simplify sales and use tax administration. The member states have voluntarily agreed to clarify, simplify and modernize their sales tax laws, rules and regulations.
By establishing uniform product definitions and best practices for simplified sales tax administration, SST works to iron out the complications facing businesses with national presence. One of the primary benefits available under the SST framework is the ability of businesses to use certified sales tax technology providers or CSPs to manage their tax filings in SST member states, rather than rely on time-consuming, manual processes.
However, certain businesses have been historically prohibited from fully participating in the program. Namely, those “required to register and collect sales or use tax in the Streamlined State as a statutory requirement” – including DtC alcohol shippers – cannot claim CSP benefits since they don’t qualify as voluntary sellers. This provision has been removed from the latest contract. Beginning in January 2021, DtC alcohol shippers will be eligible for state compensation and audit protection when using CSPs for their tax filings in SST member states.
How Can DtC Alcohol Shippers Take Advantage of This Offering?
In order to benefit from this new offer, DtC alcohol shippers will need to work with a tax technology company that has received Model 1 certification from the SST Governing Board. The CSP will be accountable for the full gamut of sales tax responsibilities in the member states, including tax calculation and filing the required returns and remittances.
There are some additional eligibility requirements under this program. Eligibility is defined by whether or not a company meets the criteria to be considered a “CSP Compensated Seller” in any of the 24 SST member states.
Those criteria are:
- no fixed place of business for more than thirty (30) days in the Streamlined State
- less than $50,000 of property in the Streamlined State
- less than $50,000 of payroll in the Streamlined State
- less than 25 percent of total property or total payroll, as defined below, in the Streamlined State
- not collecting sales or use tax in the Streamlined State as a condition for the seller or an affiliate of the seller to qualify as a supplier of goods or services to the Streamlined State
It’s important to remember that eligibility is determined on a state-by-state basis. So, for example, if a company has a physical headquarters in Washington, it will not be eligible to participate for the state of Washington, but could participate with respect to the other 23 states.
In addition, this offer is only available in the 24 member states. So, DtC alcohol shippers will need to still manage their sales tax obligations in other states they ship to. However, it is likely that if they use a CSP with a practice dedicated to supporting the beverage alcohol industry, that CSP will be able to provide support for those tax obligations, even if they cannot take advantage of the SST provisions.
Given that these benefits kick in at the start of next year, now is the time for you and your clients in this space to begin evaluating these platforms. Getting a head start in advance of the January 2021 change will allow DtC shippers to work out any kinks in their ecommerce sales and reporting processes, so they can realize the full benefits of SST participation.
Alex Koral is senior regulatory counsel for Sovos ShipCompliant. He researches beverage alcohol regulations and market developments to inform development of Sovos' ShipCompliant product and help educate the industry on compliance issues. Alex has worked with Sovos since 2015,...