IRVINE -- In a 5-4 vote on June 21, 2018, the United States Supreme Court narrowly ruled in favor of letting states collect sales tax from online retailers. Prior to the ruling, South Dakota v. Wayfair, Inc., et al. (2018), it was necessary to establish a physical presence in a state before requiring businesses to collect and remit sales tax. Proponents say the ruling will help state governments increase revenues, but opponents argue that consumers and online retailers will be harmed, particularly small merchants like sole proprietors.
Continuing, Justice Kennedy noted potential shortcomings in the former system: a product of Quill Corporation v. North Dakota (1992) and National Bellas Hess v. Department of Revenue (1967), which stood as precedent for decades – until Thursday morning. The precedents established by these cases, Kennedy wrote, effectively made "a judicially created tax shelter" – that is, a strategy to minimize tax liabilities – "for businesses that decide to limit their physical presence and still sell their goods and services to a state's consumers." Indicating that small businesses – upon which Justice Roberts warned the "burden [would] fall disproportionately" – could "seek relief" on a case-by-case basis.
The American Academy of Attorney-Certified Public Accountants (AAA-CPA) has already cautioned that internet retailers will become liable "for every mistake and missing piece of documentation." In other words, tax agencies like the California Department of Tax and Fee Administration, (formerly known as the BOE) are going to step up enforcement measures. Translation?
More audits, more fines, and more businesses in trouble with the law. If you're worried that your business will be chosen for multiple sales tax audits due to noncompliance, it may be wise to consider programs like the California Voluntary Disclosure Program, which could limit the penalties you face and offers hope for those caught in the crosshairs. If your business participates in the program, the CDTFA will (1) shorten the length of time for assessing tax against you, and (2) waive various penalties.
However, only "qualified entities" that meet specific criteria are eligible to participate. For example, the entity will be disqualified if it has ever been "the subject of an inquiry" (audited by the CDTFA).
