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2020 Tax Concerns for Manufacturers, Distributors and Wholesalers

Jaime MacDonell, Sr. Partner Marketing Manager, Avalara

2020 has BEEN A YEAR – that may be one of the few things everyone can agree on. This is especially true for businesses in industries whose sales are largely tax exempt. As the pandemic took hold, and storefronts were forced to close, many B2B businesses scrambled to add e-commerce to their sales channel mix.

In doing so, the challenge of managing exemption certificates came to light. Managing B2B buyer transaction is already a labor-intensive task for staff. How would they collect the right exemption certificates, confirm their accuracy, and apply them at the time of the online sale? This combined with the lingering and often misunderstood implications of 2018’s South Dakota vs. Wayfair supreme court ruling, has left B2B companies in a predicament.

The Post-Wayfair reality

Historically, B2B sellers did not have the obligation to register in a state to collect sales tax (or exemption certificates), but state laws have drastically changed over the last two years. Opening an online sales channel only compounds the challenge of tracking exemption certificates where economic thresholds have been surpassed. At Avalara, we’ve seen customers go from collecting 500 certificates to over 5,000 post-Wayfair. But how does one keep track of where they’re required to collect certificates when each state has a different law, or none at all?

The effect on customer experience

Feeling overwhelmed? Sit tight, it’s not over! All of this does not take into account the impact these changes have on customer experience. If they want to stay compliant, businesses now have to ask customers for documents prior to making a sale, something that they did not have to do before. Imagine the surprise and frustration! How would a customer know where to find the form they need, let alone how to fill it out? Point being, customer experience could suffer, potentially affecting sales and your tax compliance. It’s not a great situation when businesses have to have to choose between customer experience and tax compliance, both important things to consider during the 2020 economic downturn.

But wait, there’s more – consumer use tax

Consumer use tax! This tax is tricky because it is self-assessed, and who has time for that? CUT is difficult because there has never been an easy, automated way to outsource it. Let’s pause for some quick consumer use tax example, so everyone is on the same page.

An office supply store that pulls a printer out of inventory for use in its office. They would owe use tax on that printer. A retailer donates t-shirts purchased for resale to a local soccer team. They too would owe use tax on those shirts.

Now here is the hard part – what if they purchased the item at a different tax rate than where they chose to use it, for a different purpose than originally intended? Is the original tax higher than what is due where it will be used? Lower? Businesses could be losing a lot of money if the sales tax where they purchased the item is higher than where they are using it. The opposite is also true, a company could owe the applicable state government the amount they underpaid, which needs to be self-assessed and remitted back to the state.

Now for the cherry on top – ready for it? – every state is different!

Most states’ exemption certificate documents vary, as does the information required on them and their expiration dates. Some local jurisdictions don’t levy a local use tax and in others the rate is different than the sales tax rate.

It sounds like a lot because it is A LOT to stay on top of. Thankfully, Avalara has recently announced solutions to ease the burden of both managing exemption certificates and consumer use tax. For a deeper dive on these issues and how Avalara can solve them, join a webinar on October 29th at 2pm ET with Avalara experts Maria Tringali and Jason Warren.

You can register HERE