Sales Tax Reciprocal Agreements 2019: What You Need to Know
As businesses expand their reach across state lines, navigating the complex web of sales tax laws and regulations can be a daunting task. However, sales tax reciprocal agreements, also known as streamlined sales tax agreements, can simplify the process by establishing uniformity and consistency across multiple states.
What is a Sales Tax Reciprocal Agreement?
A sales tax reciprocal agreement is a pact between two or more states to simplify sales tax collection and administration. These agreements establish uniform definitions of products and services, simplify tax rates and rules, and establish a centralized administration system.
Currently, 24 states are members of the Streamlined Sales and Use Tax Agreement (SSUTA), which aims to reduce the burden of sales tax compliance for businesses operating in multiple states. The SSUTA provides businesses with centralized registration, filing, and remittance of sales and use taxes in participating states.
How Does a Sales Tax Reciprocal Agreement Benefit Businesses?
Sales tax reciprocal agreements can benefit businesses by streamlining the sales tax compliance process. With uniform definitions and simplified tax rates and rules, businesses can more easily understand their sales tax obligations in multiple states. Additionally, centralized administration can reduce the administrative burden of filing and remitting taxes across multiple states.
Moreover, sales tax reciprocal agreements can reduce the risk of noncompliance and the associated penalties and fines. By participating in the SSUTA, businesses can avoid the complexity and uncertainty of navigating different state tax codes and regulations.
What Changes to Sales Tax Reciprocal Agreements Occurred in 2019?
The most significant change to sales tax reciprocal agreements in 2019 was the U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. This decision allowed states to require out-of-state sellers to collect and remit sales tax, regardless of the seller`s physical presence in the state.
In response to Wayfair, several states updated their sales tax laws and joined the SSUTA to simplify the sales tax compliance process for out-of-state sellers. For example, Michigan and Wisconsin implemented economic nexus laws that require out-of-state sellers to collect and remit sales tax if they exceed certain sales thresholds.
Additionally, the SSUTA implemented several updates to its agreement in 2019, including changes to the definition of “marketplace facilitator” and updates to the uniform sales and use tax exemption certificate.
Sales tax reciprocal agreements are a valuable tool for businesses operating in multiple states. By simplifying sales tax compliance, businesses can reduce administrative burdens, avoid noncompliance risks, and stay up-to-date with changing sales tax laws and regulations. As businesses continue to expand their reach across state lines, understanding and participating in sales tax reciprocal agreements will become increasingly important.