Know Your Data – Stay Compliant with Sales and Use Tax

John Haggerty, Guest Blogger
Sales Tax and More

Know Your Data – Stay Compliant with Sales and Use Tax

Understand Your Numbers

In business, understanding key metrics such as sales statistics month over month, cost of goods sold, and inventory turnover ratio are critical to understand when running a successful ecommerce business. Understanding your company’s data and having precise reports to help interpret that data are vital in making quality decisions for the direction and future of your business. So, why is data analytics and quality reporting important when it comes to Sales and Use Tax? What information should you be interpreting when making decisions for Sales and Use tax compliance? How often should your company review the data to ensure proper Sales and Use tax compliance? Let’s explore these questions in further detail and help create a process that will greatly increase the probability of staying compliant with Sales and Use Tax.

The Ruling on Sales and Use Tax

hammer of justiceOn June 21, 2018, The United States Supreme Court ruled 5-4 in South Dakota v. Wayfair that states can mandate that businesses without a physical presence in a state who have crossed certain economic thresholds need to charge in-state sales tax. In other words, as certain thresholds are crossed, the business must begin to collect and remit sales taxes on transactions in the given state. This Supreme Court ruling has changed ecommerce Sales and Use Tax forever. With this ruling, each state has been granted the right to create their own economic threshold that once crossed, will require businesses to register, collect, and remit sales tax for sales to customers in that state.

 Examples of the Threshold Vary Greatly

California has a $500,000 threshold and no transaction count for the previous or current calendar year; and South Dakota (the most common threshold) is $100,000 and/or 200 transactions for the previous or current calendar year. As you can see, the Supreme Court has forced ecommerce business owners to know their total sales numbers as well as total transaction totals in each state to determine correct Sales and Use Tax compliance.

Creating a report similar to the example below for all 50 states is a must for all ecommerce sellers…

State(s) – List All Total Sales for the last 12 Months Total Transactions for the last 12 Months Total Wholesale/Exempt Sales Last 12 Months
PA $50,104.22 389 123
CA $25,022.19 108 134
IN $97,128.24 523 145

The majority of states ask that you include Gross revenue, including taxable, nontaxable, and tax-exempt sales in the totals as well as Marketplace sales such as Amazon, even though Amazon is now required to file sales tax on the behalf of the sellers. Please note:  Understanding this data is also important for companies that manufacture or sell wholesale and need to collect resale certificates.

How Often Should You Review Your Compliance?

My recommendation would be, at the very least, at the end of each quarter. The reason being that some states have a look-back period of the current calendar year. Those states require that once you cross either the dollar threshold or the transaction threshold, you register immediately and begin collecting and remitting the sales tax for all future sales to customers in that particular state.

Knowing your key business metrics for decisions on future inventory levels, employee count, and marketing spending has expanded by one more reason and that is: Sales and Use Tax compliance. While there are only a few states left yet to set their dollar/transaction thresholds, there are also quite a few that are changing their thresholds and look-back periods. Staying compliant with Sales and Use Tax requires constant monitoring as the states continue to see the huge windfall of sales tax dollars from ecommerce transactions.

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Post Author Cyndi Thomason


Cyndi Thomason is founder and president of bookskeep, a U.S.-based accounting, bookkeeping, and advisory firm for ecommerce sellers worldwide. She has a passion for data analysis and process development. She uses that passion to educate her clients and help them structure their businesses to maximize profits.

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