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If your company is not based in the United States (or even if they are!) there are business mysteries behind banking and taxation that don’t exist in many other places and sometimes don’t seem to make a lot of sense. A lot of those requirements originate from state and federal level regulations. This blog series will uncover what those mysteries are and how to understand them as systems that can be easily managed with Microsoft Dynamics NAV and Microsoft Dynamics 365 Business Central.
US-based companies that sell products online and ship to many different states need to pay attention to changing legislation which originated with a legal case called South Dakota v. Wayfair in 2018. The US Supreme Court ruled that any company that had no physical presence in South Dakota, but that have over 200 transactions or over $100,000 in sales in South Dakota, had to remit sales taxes on those transactions. This ruling turned the prior guidelines of physical presence nexus completely around, introducing the concept of economic nexus.
Since then, over 40 states out of 50 have adopted similar laws. Many of them have different economic thresholds, combining number of transactions and total sales differently. Overall, the effect of this wide-ranging legislation has the effect of increasing the number of states where a company is required to collect and remit sales tax. Prior to 2018, many companies only had physical presence nexus, which generally meant they had some type of brick and mortar location or employees in different states, and therefore had to collect and remit sales tax. While Wayfair is the company whose name is most associated with this change on law, larger companies like Amazon were greatly affected by this change.
Illustration from Avalara.com
The net effect of this change is that online companies lost some competitive advantage over small local stores, and states recovered an income stream of sales tax that used to come from these small stores and now comes from larger online retailers instead.
For small to medium sized businesses (SMB) who sell online, this has greatly increased the amount of sales tax they collect, which requires a higher level of data maintenance as they attempt to keep up with the ever changing rate tables of jurisdictions within each state, interaction with more customers related to sales tax, and higher workload for filing state level tax returns.
More companies than ever before rely on the functionality of Dynamics NAV and Dynamics 365 Business Central to provide the necessary structure and automation to properly collect and remit sales tax.
If you’d like some help with de-mystifying business processes and correct system setup related to US-based accounting practices, please get in contact with us to discuss how New View Strategies can help. We have specialists with deep accounting expertise in using Dynamics NAV and Dynamics 365 Business Central who can move quickly through the requirements for your company and establish clear and accurate processes to manage these complex business needs.
Looking for more topics related to US-based accounting? Check out the rest of our related blogs at the links below.