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hello welcome to the webinar today on the landmark ruling in South Dakota versus Wayfarer what does this ruling mean for your business this is a Supreme Court case decided about a month ago which has had some tremendous implications in the world of sales tax today there'll be three of us talking about some of the implications of this case my name is Benina Bonney Wilkin and guttin plan and I'm joined by Len Nitti who is a partner at Woking a guttin plan who focuses on state local tax as well as mega newbie who is a supervisor in our firm who also devotes a big part of our practice to state local tax matters as you know with the housekeeping it's important to answer the polling questions to make sure you get CPE so we will have some questions embedded in the in the presentation the recording of this will be really available on two places it will be on the state society's youtube web web page shadow will also be a link on our forms web page that you can see there on the third bullet so with that I'm going to turn this over to linetti who's going to really get us started on the sub groundbreaking case one great Thank You Vinay and you say groundbreaking it is very significant it's probably the most significant ruling that we've had in at least the last 25 years going back to quill and maybe even back the national Bella's Hess 40 or 50 years ago so this is groundbreaking this is really going to impact a lot of multi-state businesses especially the remote sellers and that's that's going to be the main focus today so we're going to get started with some background we're going to talk a lot about national Bella's Hess and also quill just to set the stage for South Dakota the wayfarer and what that ruling has done now Megha is going to talk to us about economic Nexus and other remote seller nexus standards I'm going to talk about how you know this really may impact income tax Nexus we're going to also talk a little bit about different types of businesses that they're going to be impacted Vinay is going to specifically take us through the technology industry and then I'm going to what may be next on the horizon for a number these states so get started with some backgrounds before we get into National Bell SS you know I think just to understand the state's mindset is you know dealing with remote sellers who haven't established Nexus with the state has become a growing issue with the rise of the Internet and the Amazon Marketplace and all these different types of venues where they can sell without actually creating physical Nexus in a state and this create creates a major challenge for these states because they're unable to have the seller collect sales and sales tax and turn it over to the state now as CPAs we all know that you know if you have a taxable transaction where the vendor doesn't collect sales tax it becomes subject to use tax which is essentially as the mirror of sales tax where it transfers from the seller needing to collect it to the buyer needing to self-report and pay it over to the tax but vinay practically speaking how many taxpayers do you see comply with use tax laws I can probably count the number I see on on one hand my career yeah certainly when it comes to individuals businesses are a different story yet business is maybe 50 50 a lot of the more sophisticated businesses do a good job of assessing use tax but the state knows there's a lot of businesses and all the state's know there's a lot of businesses that do not do a good job of self assessing use tax and quite honestly when one of these states examines a business our audits of business they usually spend a little time looking at the income tax issues little time looking at payroll and then they settle in for the the longest portion of their audit to be to be focused on you stack sales and use taxes they know there's a lot of exposure there for most of these businesses I know that's where they get the most bang for their buck so unfortunately for the states they don't have the ability to audit every taxpayer and comply there in make sure that they're in compliance so what they tend to do is they look for new and aggressive ways to require that the the sellers have to collect sales and use tax and that's kind of a lot of what the focus is going to be on today so to give some background going back to a 1967 ruling national Bella's Hess tank versus Department of Revenue of Illinois was the first real you know big state and local case dealing with remote sellers and sales tax national Bella's Hess was a mail-order company located in Missouri had no property employees in Illinois and no direct out advertising in Illinois - except for mailing of catalogs into the company or into the state all catalogs and products are should be a common carrier from outside of Illinois and what Illinois had done is Illinois amended their law to change the definition of who retailer is who would be subject to sales tax or would be required to collect sales tax and they amended their retailer definition to include engaging and soliciting orders from users by means of catalogs or others types of advertising as a retailer who has a nexus with the state so national Bella's Hess decided to take a limited court and argue that they didn't have sufficient nexus with the state despite the revised definition in Illinois is law and this ended up going up to the Supreme Court and it ended up really being a Commerce Clause and due process clause case of the Constitution and just to give a little background on the commerce clause which is ultimately how the Supreme Court ruled is the Commerce Clause authorizes Congress to regulate commerce among the states it's been interpreted interpreted in tax cases to include both the authority to regulate but also imply prohibition of state laws that discriminate against interstate commerce this is known as a dormer in commerce clause for those of you that have heard of that before and the Supreme Court ultimately held is the Commerce Clause prevent the state from requiring the collection of tax where the sellers only connection to the state is by common carrier or mail deliveries so that's national Bella's Hess and we had this as our Authority for quite a long time until 1992 when quill versus North Dakota was determined and ruled on by the Supreme Court well Corp sold office equipment and supplies and it solicitous sales from a few different ways elicited be a catalogues flyers advertisements and telephone calls will maintain no property employees or agents in North Dakota and North Dakota is another state that decided to amend their retailer definition to try to capture quill and other types of remote sellers and what they did is they tried to establish a bright-line test for creating Nexus and the way they did this was by amending the retailer definition to include every person who engages in regular or systematic solicitation of a consumer of the consumer market in the state regular systematic solicitation was defined to mean three or more advertisements during a 12-month period so for North Dakota they were trying to establish a bright line of three solicitations within a 12-month period so quill took North Dakota to court and at the trial court level the trial court actually ruled in favor of quill based on national Bella's Hess North Dakota appealed that to the state Supreme Court and what the North Dakota Supreme Court decided was that national Bella's Hess was outdated and obsolete and they ruled in favor of North Dakota well took this up to the Supreme Court in the Supreme Court agreed to hear it and you know this really ended up focusing more on the due process clause and their determination and due process due process for state and local taxes has been interpreted to be to prohibit States from taxing a business unless there is a minimal connection between the company and the states and what the ruling of quill gave us was a physical nexus test there had to be a physical nexus standard to ensure that or to allow for a state to physically require a sales tax collection of a taxpayer and this has really been the basis of how we've done planning over the years to try to minimize how many different states a taxpayer is going to have nexus with for sales and use tax purposes you try to avoid the physical presence and do everything remotely in the States have had some success trying to get around quill and find unique ways of establishing you know physical presence that's beyond physically having people in the state I'm ever going to talk a little bit about that later so I don't want to go into too much detail but this is where we were and continue to be until we get to South Dakota who was one of the first states that enacted n't economic Nexus law and what South Dakota did was they passed this economic Nexus threshold which creates a bright line for determining based on your economic activity in the state creating a requirement to collect and remit sales and use tax I'm ever going to get into some of the nuts and bolts of this in a few minutes and on top of that without the coded data they notify for for the larger online retailers internet retailers of their obligation to collect and remit sales and use tax Wayfair which is the one that the cases titled was one of them overstock.com Newegg and system acts were all the four retailers that were contacted of these four only system acts decided to willingly comply with South Dakota's sales and new sales tax law and economic Nexus standard the other three declines a compliance I think will and physical presence the physical presence test under quill and stated Dakotah had no authority here to require them to comply with sales tax collection so South Dakota in turn sued these three companies to enforce sales tax collection and all of the South Dakota courts decided to rule against South Dakota citing that they did not have the precedent to overturn either national Bella's Hess or quill so sad the quarter period of Appeals to the US Supreme Court and the US Supreme Court decided to hear the case first state and local case for sales tax that was harridans quite some time so what was surprising to a lot of practitioners is that the US Supreme Court ruled that the physical presence rules of quill was incorrect and what was interesting in the earlier two cases we discuss the court was very clear that they felt that Congress needed to act in order to regulate interstate commerce here and it was almost expected that the Supreme Court here may do the same thing and point to Congress once again to pass some level of interstate commerce type of legislation especially for sales tax Nexus also an income tax Nexus but the court you know went ahead and ruled that you know the ruling quill was was incorrect it overturned both the rulings in quill courts in the first North Dakota as well as national Bella's Hess versus Illinois the one thing the court did not do is it did not apply on the constitutionality of the South Dakota economic Nexus statute it has remanded those back down to the state courts to determine I think it is widely expected that the state courts the state tax courts will approve this economic Nexus principle and you know we've been seeing already and Magel talk a little more about this is states are now going to start pretty quickly passing economic Nexus statutes probably very similar to South Dakota's just to kind of jump on the wave and make sure that they're collecting all the revenue possible from sales and use tax so that brings us to our first polling question which is how do you think the way for a ruling will impact either your business or your clients businesses positively negatively or you share at this point or do you think it's not applicable and then while we're waiting for that I believe the Supreme Court opinion bait they spoke favorably about some of the de minimis threshold South Dakota had in the statute right to make it easier to comply with correct yeah they look towards filter the number of different things although it wasn't ultimately how they rule but they did look and discuss you know the bright-line threshold not necessarily being too low they like that they also look to South Dakota as a streamlined sales tax state and thought the South Dakota was trying to make it managed and make it easier to comply with these laws by participating in streamlined sales tax I don't know that that would necessarily be applicable in a knock streamlined sales tax state trying to assert an economic Nexus but I guess that will be determined down the road should we see a challenge to any of these laws in the future right I think it all goes to to explain why most people think that the South the statute South Dakota will be upheld by the South Dakota Supreme Court agree I think we have enough in and you know nobody thought this was going to positively impact their business not surprisingly and you know the vast majority is either thing is going to impact them negatively or they're unsure about it which i think is pretty fair right now so so let that tells me that we don't have any accountants with a lot of bricks brick and mortar retailers who are himself they were competitive disadvantage among the on the yep we'll talk a little more about that later in the presentation but yes so I'm going to turn it over to Meg now to tell us all about economic Nexus all right thank fun so despite being in stark opposition to quill the former law of the land with regards to sales tax economic Nexus is not an idea that has emerged over night since the Wayfarer rolling and has actually been on the horizon for many states for the past years so economic Nexus which does not require physical presence in a state instead creates a bright-line test for tax obligations by establishing sales and volume thresholds for sales tax purposes remote sellers are required to collect and remit once they hit either certain dollar threshold or a number of sales transactions in either calendar year or rolling 12 month period South Dakota whose economic Nexus standard is now in the limelight requires out-of-state sellers to collect and remit sales tax once they achieve either a hundred thousand dollars of in-state annual sales or two hundred separate in-state sale transactions during the year although the sales component may seem reasonable enough it's important to note that volume does not take into account the per transaction cost what I mean by this is let's say a company selling $5 widgets 200 transactions may only result in about $1,000 of in-state sales which is far less substantial than the hundred thousand dollar sales threshold in effect for purposes of this webinar we chose to examine the economic Nexus standards for New Jersey and our neighboring states New York and Pennsylvania as well as the two key states of California and Texas New Jersey is actually one of the few states that has passed legislation regarding economic Nexus for sales tax purposes within the past five weeks since the Wayfarer case was decided on June 21st since this is a relatively recent development it likely comes as no surprise that New Jersey set the same threshold as South Dakota economic Nexus in New Jersey which will be effective as a October 1st of this year Pennsylvania on the other hand has no volume thresholds and a much lower sales threshold of a mere 10,000 dollars however it's important to note that Pennsylvania's economic Nexus is a notice and reporting law which allows remote sellers to make an election to either collect and remit sales tax on Pennsylvania sales or to comply with the state's rigorous notice and reporting requirements although the specifics of notice and reporting requirements do vary slightly among states in general of these notice and reporting requirements require the remote seller to do the following one must include a notice on their website that use tax may be due on purchases to to include a transactional notice with each sale informing customers that use tax may be due three to send an annual notice to customers who spent more than a certain amount reminding them that they owe use tax and four send an annual notice to the state reporting information about the sellers who owe use tax needless to say states have intentionally made this notice and reporting process difficult in order to encourage retailers to back down and off to collect and remit sales tax although the primary focus of this webinar is sales tax we did want to mention that a handful of states also have economic Nexus standards which they apply to income tax California for instance requires corporations to file an income tax return if greater than 25 percent of their total sales are from California customers or if the corporation had California sales in excess of a certain threshold amounts to that particular tax year for 2017 the threshold was just shy of 592 thousand dollars which has been indexed for inflation since 2011 another example is New York which requires corporations to file an income tax return if the corporation has an excess of 1 million dollars of New York sales during the year so in order to illustrate just how prevalent economic Nexus is we have included each state that has enacted economic Nexus for sales tax purposes you may notice that of the 26 states that currently have specific economic Nexus standards the majority had the same thresholds at South Dakota however it is important to note that there are a handful of states with more lenient thresholds and a few states that have structure thresholds that coincide with the notice and reporting requirements that we just discussed a few minutes ago not only that but the effective dates do vary from state to state as well like I mentioned on the last slide New Jersey's economic Nexxus is effective as of october 1st of this year while some states have affected dates that predate the Wayfarer case since each state has different stance with regards to economic Nexus for sales tax purposes it is important to understand the nuances of the states that your business does not have a physical presence in but may still have a sufficient enough connection to so even before the quill or even before quill was overturned and physical presence was no longer requirement for a state to subjective business's receipts to sales tax many states had implemented clever standards in order to compel remote sellers to collect and remit although business itself may not have a physical presence in a certain state the physical presence of an affiliate of the business or affiliate necklace missed Nexus is sufficient enough to subject the business to sales tax click-through Nexus enable the state to impose sales tax on a remote sellers who contracts at an in-state individual or company who either indirectly or directly refers potential customers to the retailer through a click a link on the contractors website for either commission or some other form of consideration which is paid upon the sale you may have heard of click through next that's referred to as the Amazon law cookie Nexus refers to internet cookies which are small pieces of data sent from a website and stored on a user's computer that records and users browsing history when you make an online purchase cookies are why you start to see similar products advertised on different websites that you visit after the sale remote sellers who install cookies on an in-state users computer are viewed as having Nexus with that specific state marketplaces such as Amazon and SC are required to collect and remit sales tax as the retailer in states where the marketplace has a physical presence rather than the requirement being imposed on the individual sellers trailing Nexus is a method used by some states under which businesses that cease the activities that create a nexus with the state whether that is economic or otherwise continuing to have a obligation after those activities have ended trailing Nexus periods range from three months to four years depending on the state use text notice and reporting requirements were discussed previously such as a reminder are typically elected by a remote seller in lieu of collecting and remitting sales tax in a specific state and with that we're at another polling question so how do you think that states that currently do not have economic Nexus standards for sales tax will react to the Wayfarer decision do you think they're going to implement the same threshold at South Dakota you're going to implement the higher more lenient threshold in South Dakota implementing a lower stricter threshold in South Dakota or you still unsure so it seems like everybody kind of has the same view of this as as we do here at look in and gotten plan so we're going to close this poll looks like everybody is pretty much already responded but we're inclined to agree like our own state of New Jersey decided they're going to stick with the same threshold as South Dakota but of course any state is able to make their own decision could be higher could be lower we're not sure and with that I'm going to turn it back to Lenny thanks Mick so how made this impact income tax Nexus first thing to be clear about this ruling was purely a sales and use tax case based on sales and use tax economic excess laws that said several states have already enacted economic Nexus laws including California and New York I believe and you know one thing that these states have been very careful of it as they enacted economic Nexus laws is that they've continued to provide Public Law eighty six dash two seven two protection in those laws so what is eighty six dash two seven two four tax it protects the mere solicitation of cells within the state and of cells of tangible personal property within one state where these the cell is shipped back out of state to the home base to be approved and fulfilled from out of state so all the activities that are happening in that state are the mere solicitation and if that's all you're doing in the state you have public aiding law - two seven two protection that said it's only for tangible personal property sells so that's not going to include any services that are being performed it's not going to include anything that rises above the level of selling personal progress such as a bit one of your sales that is collecting checks from one of their customers they can return us from one of their customers Vinay what's your experience been a taxpayer's ability to qualify under probably six to seven - even if they tried to structure perfectly to comply with the law I think in my career I've had one where I really felt comfortable day they met the threshold because the the bar is set so low that just in the course of a salespersons day-to-day activity whether it be accepting a check doing a demo exceptional return doing product training it's so easy to violate that strict standards that it's almost unheard of to qualify if people talk about it a lot but I think in practice it's it's not a practical alternative and my wife asserted and been successful more than one time as you've seen in your career it has become more challenging especially as you're dealing a company dealing with more and more you know salesman it's difficult to keep tabs on exactly what they're doing and educating themselves and every time they come in it's very easy for some level of activity of the sales and it's conducting that the business may not even understand is happening to trip the lineup of a below 86 - 2 7 - but as of now we still have over below 86 - 270 you can still use it as a planning opportunity to limit your income tax income tax in excess but keep in mind again or only applies to sales of tangible personal property states that have not been in favor of total 86 - 272 it tried to find some ways to get around it one way is you know franchise taxes Texas is a state that has franchise taxes which are taxes measure - based on some other methods other than net income you have other types of taxes like Washington State and Ohio have gross receipts taxes Pennsylvania's to have that capital stock tax so there's a lot of different ways that states have gotten around Buffalo 86's 272 by taxing taxpayers about something other than an income tax and you know with this ruling in quill perhaps it sets the stage for states to look to challenge the relevance of public law 86 days to 72 in the current you know marketplace where so many sellers are now online you know selling online selling remotely it you know they may think it's time to revisit 86 - 272 or even try to claim it's outdated or irrelevant now so look to see if that happens down the road to date with the states that have passed economic access laws they have continued to respect the public lighting 6-2 7 - language so what about impacted businesses clearly this is having a huge impact on internet and remote sellers especially the larger ones that are meeting these thresholds where you know perhaps business a seller that just had one location in New Jersey but sells into 50 different states they may have just seen their sales tax compliance go from having to collect New Jersey tech to having to let collect tax potentially in 50 different state level jurisdictions plus all the localities that that collect sales tax I think last cat were over 12,000 local jurisdictions within the United States that have a sales or use tax so it is you know going to be quite difficult on these remote sellers and Internet companies to comply here who else is going to be impacted you know service providers are going to be impacted even if all this works being done out of state because sales tax is generally speaking a destination destination state tax so where are you where is the seller in it or was where the purchase are going to receive benefit from it that is where this the sale would be subject to sales tax so if you have repair and maintenance types of services and one is going to talk a lot of that technology in a bit but the technology industry may be significantly impacted by this role in form of sales and use perspective you know it's not doom and gloom for everyone and I think a we've probably even heard a few brick-and-mortar stores actually exhale and cheer at this ruling because you know they've been challenged over the years since the rise of the Internet and remote sellers but a lot of consumers think well hey if I go into my brick-and-mortar store I'm actually being penalized by having to pay sales and use tax because if I buy it online it it's free of sales and use tax I never have to pay that again we as professionals know that there's still a use tax component that they're responsible for but as Rene said earlier when asked the question individuals tend not to comply with these use tax and it creates a big black hole for the states and it was really a competitive disadvantage for these brick or mortar stores especially with online and remote sellers offering free shipping now you know they even some of them are even offering same-day delivering now so it's just such a convenience to order online if consumers willing to wait a few days they always felt that they were getting something for less money because they didn't have to pay the sales tax and now it kind of levels the playing field for these brick-and-mortar stores and perhaps you know the brick-and-mortar stores will see an uptick in sales as a result of this right but you know the other side of that trend is just looking in Amazon as Amazon is their footprint is widened so much they are physically in lots of states and I think Amazon has said that they were charging sales tax at least for the goods sold through Amazon itself not through the third-party sellers because of their physical presence all over the place so this is so some of the major players are charging sales tax with obviously a big company like Wayfarer which is a huge internet retailer who's not charging sales tax alright a lot of states it's not so much an issue in New Jersey because they both have physical presence in New Jersey but and a lot of in many states they don't they don't have any physical presence so those sellers when they're selling in this state there was never the cells in you stack so it's been a big issue I know in New Jersey alone and when they passed the budget they estimated the passing economic Nexus was going to create about 180 million dollars annually at revenue additional revenue for the state and quite honestly that's probably what allowed us and I have a government shutdown is that this revenue this unexpected revenue and fortunately New Jersey was quick enough to happen a timing of the ruling was was almost perfect considering the timing of passing the New Jersey budget but probably created us room from having a shutdown because the governor and our legislature was so far Accord on whether it raise taxes on individuals or businesses or how they were going to bridge that gap I think this made it a lot easier to get the budget passed in and allow business to continue as usual for the state all right we still had a few small tax increases but there was no shutdown no shutdown so I think we're now going to turn it over to Vinay to talk about the impact on the technology industry all right thanks Leigh so you know we've been talking about about online retailers and how this ruling is important because of the physical presence aspect but technology is just another huge segment that kind of relies of due to electronics and and the fact that there is no physical presence so we're going to spend a bit of time talking about how this the way fair case impacts different aspects of the technology industry so let's just kind of talk about the types of products we're going to talk about we're going to talk about cloud-based services which there's three main types software the service platform as a service infrastructure service that's one group of services the next we're talking about data processing services and then we're talking about traditional software and how the way for a case impacts all these so before we get into the taxation of a cloud-based services let's just talk about the three types of cloud based services so that we all have the same reference point so the most part where we're going to spend our time today is on software as a service so these are things that we all use every de Gmail the this webinar service we're using right now your tax software is most likely a software the service something where you're you're not maintaining the software in your office you're you're logging in and somebody else is taking care of all that back-end headaches and you're just simply paying usually a periodic subscription for you to use the service that's by far the most common aspect not that we're going to talk about it in too much detail in terms of sales tax but just recognize there's another type of platform or cloud-based service called platform as a service and this is these are really things that you would use if you are a developer of software these are the the underlying of programming languages that allow you to write apps to build databases things like that and I just want to talk to point out this as well the next in case you're dealing with software or platform of service or the next category to understand that there's separate roles with respect to sales tax would apply and you need to look at those separately then the last major piece of infrastructure the service and this is really your it's as if you went out to a computer store and rented a server except you're doing it online you're going to Amazon Web Services and you're saying I need I need eel 10 gigabytes of computing space and you pay for it as you need it so again you're the user you typically would not use something like that you're going to be in some sort of IP function hosting something and again different rules so let's go back to our main focus of software as a service and our five representative states that we're dealing with for purposes of this webinar so who's subject software the services sales tax so as you can see New York is a big one New York Pennsylvania Texas do California New Jersey do not now the question will often come okay I've got a customer in I'm selling soft service July look to where my customer is located who's got the contract or where the software is being accessed from so I can be a New Jersey company with the SAS product I can have a contract to the New York customer who's paying my fee but that New York customer may have a remote worker who's logging in from alifornia so it's a great question I get asked all the time I don't have a really good answer other than I think the practical approach is you typically look to the contract of where your customer is because many of my clients will say look I know I've got my contract with their the New York customer I really have no easy way to figure out where they were they accessing the software problem and it's just impractical for me to try to look at IP addresses and saying where are people logging into the software well so I think the practical matter we look to where the customer is we look to see okay well first we look to see does that other state charge subjects s2 attacks then we would like to see does that state have an economic Nexus requirement assuming that we don't have a physical presence in the state and then if we do have a customer in one of those states then we probably should be collecting sales tax on our periodic SATs and tuition fee so now let's go to the income tax side of the column you know how do the states look at software-as-a-service fall states are going because has the SAS company you're getting revenue is going to be subject to income tax the question is where so one of the common dilemmas we've had up in which is going to be corrected next year is the difference in how New Jersey New York will get at sourcing rules so if I have a New Jersey based software company and I'm producing a SAS product New Jersey for this year says that we look to where the service of formed if all my developers and code writers and servers are sitting in New Jersey New Jersey said that the New Jersey sale right for corporate tax or corporate tax heartless is correct for New York corporate tax purposes in New York says well where are your customers if the customers accessing that fast product are sitting in New York that's a new york-based sale so we have two different states that are taking the same bucket of revenue and subject in tax in their state fortunately in 2019 New Jersey is going on market based sourcing approach which Jenny tends to be the majority of the states but as you can see Texas so uses the cost performance and there's plenty of other states we've not listed here these costs of performance when it comes to income tax so again you want to look to see does the state have an economic Nexus statute and if they do you know you could have situations where the same income is being such attacks twice or if you're lucky it could be the opposite where you could have an item of income that's not being subject to the either state the cost of performance state or the market based sourcing state depending on how how the rules work and it's certainly the the trend in state and local taxation is to go with market based sourcing because the states want to shift the tax burden to those who have a physical presence in the state and are creating jobs to the out-of-state companies are just taking advantage of their economy of course so now with some of the other category called data processing services and you can see the definition on the screen to me the example is the easiest way to comprehend this so we have a client that is the kind of the intermediary between online travel agencies where you go to the look for motel reservation and the hotels themselves to share their capacity to the online travel agencies so think of it as like an electronic switch from electronic connector that's what this company does and you know for sales tax purposes they are you know a typical what we call data processing company which is really separate from SAS separate from software they provide data processing services and if we look to our or states most states do not collect impose sales tax and processing services except for Texas Texas as you might know does not have a partial income tax so it kind of makes sense that they can have a more dynamic sales tax regime so some states will tax data processing services and then you have to look at the income taxation and again you have market-based states and cost performance states so again you could have you can have a good news which a piece of income could be taxed in neither state or bad news where it's taxed in two states but data processing services is something that to keep your eyes on and then finally let's go to software this is kind of the original technology product I think we all know what software is software has changed over the years years ago when you wanted Microsoft Office you would go to Staples you would buy a cd-rom and loader on your computer there was something tangible and most states took the position that when the when the software is being delivered on tangible medium it was tangible property because sales tax has really developed in a the world before video we became a service to the economy and it's not that it made a whole lot of sense but most states took the position if you were if you could touch the software on a CD and was subject to sales tax whereas if it were being downloaded and you couldn't touch it it was not super sales tax so that's kind of evolved over the years and going back to our five states you can see the different positions states take on sales tax so most all states will say if it's delivered on tangible personal property and can software meaning pre-programmed you don't need any customization like Microsoft Office it's gonna be sort of the sales tax when you have software to download it over the years most states are now taking the position that yes that is also subject to sales tax because it's become the norm in in delivering a software most states take the position a customized software is more like a service and it's not subject to sales tax but as you can see Texas does in some cases Texas and Pennsylvania in some cases do do tax customization in both of those cases customizations of can software so if I had QuickBooks and I hired a programmer to write a interface between QuickBooks and interface between another piece of software that wasn't compatible with QuickBooks that service may be subject to sales tax in Pennsylvania in Texas on the income tax side you still have the same issue about cost performance or where the where the users getting the benefit the equipment market sourcing being the destination state method so again you need to look at does the state you're dealing with have an economic Nexus statute does it tax the type of software you're delivering to determine if you should be subjecting that sale to software and that takes us to a polling question which area of Taxation do you think provides taxpayers in a text industry with the greatest level of uncertainty if the product is something to sales tax and I think we have a typo there if they have Nexus how to source their receipts or are unsure so let us know what you think I always just told there was no typo in any event most people responded let some give another second able to jump in and I think with that we'll close the poll yes most people believe that Nexus is the biggest issue whether they're going to be subject to if they have clients the tech industry how that's going to impact them and there you see the final results so now we go to lens to kind of take us into the wind down and think about the future steps great Thank You Vinay the technology is always interesting is so many more businesses or having a technological component that the way they do business you know more and more every year so you may capture non-traditional technology companies here or just providing information on their website offering downloads whatever it may be so I think a lot of businesses have to keep this in mind as their business model evolve over time as well you agree I agree absolutely absolutely so what's what's next I think the easy one is the first bullet over here and many states are going to start to pass copycat legislation we were a seeing it with five states New Jersey and Wisconsin being the first two and they've been joined by three other states so within a month time five additional states have passed economic Nexus laws and now I think we're at a point where more than half of the states have economic Nexus for sales and use tax purposes and it's just going to continue to trend in this upward direction and you know I think we're going to see it a lot of activity in this area over the next year especially it states get into passing their annual budgets and looking for new ways to generate and create tax revenue this is going to be a no-brainer for most of them that they'll have an economic Nexus already in place so what about the costs complexity of compliance for tax payers now you know it's certainly going to rise especially if you had it you know a business that was really only focused in a few different states needing to collect sales you use tax and that's going to grow substantially now you know they have some decisions to make I think it all should start with considering you know doing a nexus study and reviewing what their Nexus is in each state and you know there's a few different steps to that first you know looking at the states where they they're you have new economic Nexus laws do they haven't a significant enough amount of business in those states to have to comply that step one step two is the product or service that they're selling into those states actually taxable you know one thing that a lot of whole sellers are going to rely upon is resale certificates so at a minimum you know business owner is if they're selling to retailers who we're going to resell this they're going to want to make sure that each states are selling into offers of resale exemption most if not all and make sure that they have those resale certificates on file start proactively asking for them now they really should be looking to have resale certificates on file for anyone that their solitude is going to be a reseller in anticipation that they may have Nexus in a lot of these different states so I think that's an easy first step and a no-brainer but once they go through and figure out one that have Nexus and two if they are selling taxable products or services then you get to what are you going to do next and we proactively register and just deal with this on a going-forward basis or are we in some states that had already issued economic Nexus laws and we were kind of waiting to see what happened with this wayfarer we're ruling before complying you know we may have to look at that state is trying to impose retroactive compliance or maybe some states may take the position that there are other laws of always allowed for economic Nexus and really try to go back in time to taxes hopefully that doesn't happen I don't think the courts review very favorably on a state trying to go back and aggressively collect taxes outside of those states perhaps that already had economic Nexus laws so if taxpayers in that position you know are you are you going to want to try to do something under amnesty if you have a state offering amnesty for sales and use tax purposes when they you know in reaction to this Wayfarer ruling or perhaps some tax payers you know look to voluntary disclosure agreements and voluntary disclosure agreements are a great vehicle for limiting risk typically there's a three or four year look-back period so you're you're dealing with only a very small window of opportunity where the state could come back and look at you but close all the years prior to that and they'll also typically weigh penalties and some states will even give favorable interest rates I know Texas just went through a a mistake but I think voluntary disclosure would still be on the table new jersey has an atmosphere ogram coming out so it you know it's worth looking at seeing what all the states are doing and how you know you please taxpayers may need to comply but just general compliance you know it's going to be costly especially if you're dealing with 50 different states you know you're going to have to get some level of sophisticated software like a novel ro or vertex in place that will work with your POS system and integrate with your accounting system to charge sales tax charge the right sales tax based on the actual state and locality that you're sending into collected posted to your journal entry make sure that these returns are getting filed you know other tax payers that don't want to go through that process may actually need to hire somebody to deal with this this new reporting requirements that tax payers are going to be faced when I have to do I'm just going to say but you know wait there aside this is really a kind of a golden opportunity to take a fresh look at all your clients state and local compliance and do be das because some on top of everybody's mind it's a good good time to just look for things that you know you thought you may have addressed years ago and over time you know the business model changes and nobody picks up the phone calls the CPA every time they do something a little bit different and then you wake up five ten years later and you have a very different business model than then you might have thought in your mind so you use this as an opportunity all right not only to look at economic Nexus but all types of Nexus and reps for both sales and use and and income tax so I think the other thing which isn't on the slide that we have to monitor and keep an eye on is what are our states going to react on the income tax side are they going to start to pass more economic Nexus laws on the income tax side to coincide with what they're doing on the sales tax side that may not be as immediately that may not happen as immediately as a sales tax legislation is going to be passed by the various states but it's something to keep an eye on and make sure we're monitoring that as well and certainly keep an eye on to see if any states choose to challenge public law 86 - - 7 - I think that's another important important aspect you know if we lose pluggable 86 there's 272 protection that kind of opens up the states to go after all taxpayers for income tax purposes addition to sales you know sales tax compliance so I think that brings us to the end of the prepared information so they are there any questions we wrap I apologize but we do have one additional polling question and then we'll we'll get into questions and answers so kind of ask this again in a different way now that we're at the end of the presentation but do you expect sales tax mixes do you expect for your business if you're in private industry or for your clients that have sales tax Nexus and additional states do to these new economic Nexus laws so yes no one sure or not applicable then we have most of the people who have responded I think when we go into close the poll yeah and not surprisingly we have a pretty overwhelming overwhelming yes most of you and I think three of us agree that you know a lot of taxpayers are going to be impacted by this and have Nexus in a lot of different states as a result of economic Nexus laws we have a few minutes left I see one or two questions in the chat box maybe we'll try to address them one of them is kind of more technology focus if we have a reseller of hardware and software no internet sales office only in one state salespeople travel to make the sale programmers do not go on-site most of the time how will this change affect us so let's kind of talk this through if let's just focus on the hardware component if I'm a reseller of hardware into a state I think now that regardless of whether there's there's salespeople to physically go to the state now I'm acting as a similar to an Amazon my my guess is that I will be having to charge sales tax on that sale of hardware absent assuming that the end client is not reselling it or using in some sort of exemption it cannot give you a resale certificate on the software side we need to look at what's what's the nature of the software being sold is it can software that's being preloaded on the machine is a custom software being written specifically for that that application will determine how the software is treated and if you have a situation where you have two different results one for the software one for the hardware you may have to separately treat those transactions separately invoice hem so that you can only charge sales tax on on what you're required to charge sales tax beliving most states will say that if you bundle it with something else and there's a taxable piece of it the whole thing is something to say tax so when do you have any other thoughts now I think strictly on the question of how it's going to impact them I don't think wafer is going to impact this business much at all because the sales people traveling into the states would have created physical presence to begin with so they would have already had sales and use tax Nexus so I don't think Wayfarer changes anything in and of itself but as you say to the extent that they're selling software to a reseller or selling hardware to a resaw make sure you get those exemption certificates because those will become very important to have on file okay so the the next question I'm gonna give you one because I I don't know the answer how do we do by his clients who may not reach the hundred thousand threshold or 200 transactions at the beginning of the year in terms of collecting about with respect to collecting sales tax just in general you start the year you're a relatively small presence in the state you don't know whether you're going to threshold or not right so you know I think they have to they have to make a business decision I've heard things all over the map is to have businesses may want to deal with this you know some businesses are trying to be proactive and limit their sales in an expand and kind of take a cut off approach you know once yet you get to a certain threshold to stop taking sells to avoid this you know sales tax compliance requirement but you know practically speaking is that a smart business approach you know I don't know that it is you know certainly a business owner isn't going to turn down a large sell that would put them over the threshold just because of the profit they can make so that if they take that approach they may start to impact their their profitability if they end up getting thrown over that threshold anyway but you know the question is if they collect it and don't reach the threshold you know there's no harm in complying if you think you're going to get there even if you don't have the Nexus requirement you could always be on the safe side register to to collect and remit sales tax if you're close to the threshold and you just don't want to have to worry about when are you going to cross that bright line there's there's no harm in doing that I think that's a good way to do it especially if you're using some level of software that can easily track and help with the filings right so so there's no arm among us tax people but on the sales side they're going to say you're putting it a commercial disadvantage because my competitors are not charging sales tax I don't want to charge sales national tab so we have to and I guess the other angle for this is each state's going to have their own administrative rules but how they implement this and it could be that you know it's only on sales subsequent to that that you have to collect in charge and remit so it may be something you just have to actively monitor and have the registration forms ready to file and be ready to flip the switch if you do cross that threshold during the year right exactly and as you said it's not a one-size-fits-all answer because each state's going to have their own unique rules many of them may looks just to the prior year and went across the parcel from the prior year you suck up to it in the following year some may make you subject to at the moment you trip the wire it is said so well you do have to monitor and it's hard to give a Senate events for that question it's more estate specific question okay so that takes us to the top of the hour and we would like to thank you for joining us for this webinar and thank the State Society for going to speak and with that we will conclude the webinar