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What CPAs Should Know About Remote Sales Tax Rules


With online shopping becoming more prevalent during the pandemic, many brick-and-mortar retailers pivoted to online sales to stay afloat. But your business-owning clients who sell online need to be aware of how South Dakota v. Wayfair and other remote sales tax laws might affect them. In this article, Joe Abesamis explains what you can do to help them navigate this changing landscape. 

Sep 29th 2021
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A coworker of mine is an avid collector of vinyl records. Last year, one of his favorite musicians put out a new album, and the vinyl copies sold out through the artist's site very quickly. My colleague searched for it elsewhere but finally gave up, content with the fact that he would not own a copy. However, on Christmas morning, to his surprise, he received the record as a gift from his wife. When he asked how she found it, she told him she had looked online and found a small record store in Colorado that was selling inventory through its website during the pandemic. 

Like that record store, many brick-and-mortar retailers pivoted to online sales because of the pandemic, and some have actually seen an uptick in sales because of it. For businesses worried about how to stay afloat during the pandemic, this boom in online sales was much needed. Now, months later, brick-and-mortar retailers are realizing that online shopping is here to stay, and with it comes new tax complexities. Since many of the tax laws are changing as a result of the prevalence of online shopping, retailers must know how to respond.

Many of these tax changes have been in the works since the U.S. Supreme Court's 2018 landmark South Dakota v. Wayfair decision, but the past couple of years have shown that decision even more impactful. All states that collect sales tax now have some law in place regarding remote retail sales tax, but each of these states has a different threshold for how or when a retailer is required to collect state sales tax. For example, the record store in Colorado would have to sell $500,000 worth of product in Texas to hit the threshold; just one state away, in Oklahoma, the threshold drops to $100,000. The reality is a small retail store is not likely to be impacted by these laws right now, but as the online retail market continues to grow, it’s likely that all remote retailers will be affected.

What Accountants Can Do

As a CPA, I need to stay on top of these changes for clients who could be impacted, especially since our firm is dedicated to providing clients with proactive services. Most CPAs specialize in a niche: some are focused only on the preparation of financial statement reports, while others specialize only in preparing income tax returns and are less familiar with sales and use compliances.  

At our firm, we take a holistic approach to a client’s financial situation. Although we specialize in income taxes for small- and medium-sized businesses, over the years we have learned more about the ever-changing landscape of sales taxes. While we don’t know the rules for all 11,000 sales tax jurisdictions in the United States, we do know how to find answers to a client’s sales tax question as it relates to their business.

We also do year-round tax planning using technology that keeps track of our clients’ books in real-time, allowing us to adapt and make them aware of how to remain compliant to prevent audits and other issues.

What to Do For Clients Who Own a Business

Navigating tax laws can be overwhelming for a small business owner, but there are tools that will make it easier for your client. Avalara, Tax Jar and other sales tax apps will determine what your client needs to do, and they integrate with many online point-of-sale solutions. Additionally, some existing marketplaces such as Amazon, Etsy, Shopify and others may already track sales tax compliance, making the process easier for your client. Just be aware that each marketplace will have different requirements for selling on their platforms. 

Ultimately, the best thing your client can do is prepare in advance with you, their trusted CPA. As CPAs, we must help our business-owning clients adapt to new laws and improve their businesses, no matter what the legislation does. You have the tools and experience to help your client navigate these confusing changes.

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