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How the Wayfair Decision Impacts Nonprofits

On June 21, 2018, in a 5 to 4 vote, the United States Supreme Court, in South Dakota v. Wayfair, ruled that states were no longer bound by the physical presence test and could require out of state sellers to collect and remit sales tax based on economic nexus as long as certain criteria were met. AAFCPAs would like to make our nonprofits clients aware that this decision did not just affect for-profit businesses. It has wide ranging effects on nonprofit organizations who purchase or sell goods or services out of state. AAFCPAs has outlined financial and operational issues nonprofits must be aware of as a result of the Wayfair decision, including guidance on how to manage the new filing and collection requirements.

New Compliance Obligations on Purchases

As a result of the Wayfair decision, out of state online purchases may now be subject to sales tax in those states. Some states provide an exemption on purchases by nonprofits.  Nonprofits should determine if purchases are now subject to sales tax as a result of the Wayfair decision, and if there is a sales tax exemption in that state. Additionally, some states require a registration to receive this exemption and/or submission of your tax-exempt certificate before the obligation to pay sales tax is waived.

Will the Sale of Goods Reach the Threshold for Economic Nexus?

Following the Wayfair decision, nonprofit organizations need to analyze which of their goods and services are being sold out of state and whether they would be subject to sales tax. While the guidance on tangible property is clear, the rules on services such as teleservices and other cloud-based or technology services sold out of state is unclear.

Once a nonprofit organization has identified the goods and services being sold out of state subject to sales tax, they need to identify if that state is one of the approximate 30 states that follows the Wayfair economic nexus precedent. If so, the organization will need to identify whether the amount of sales is over the state threshold to trigger the collection and remittance of sales tax.

Not every state’s economic threshold test is the same. Certain states follow a transaction test, whereas others follow a gross receipts test or a combination of both. Research into the specific state standard will be required.

Next Steps if the Sale of Goods or Services Reaches the State’s Economic Threshold

Once you determine you will need to collect and remit sales tax on out of state sales as a result of the Wayfair decision, you will need to first register as a vendor in each jurisdiction. Nonprofits, for possibly the first time, will need to establish a process to correctly charge, collect, and remit sales tax to the out of state taxing authorities. Additionally, nonprofits need to be sure they have the correct billing software to properly charge sales tax and the resources to retain invoices and provide exemption certificates where applicable.

Additional Concerns for Nonprofits Following the Wayfair Decision

Because of the Wayfair decision, more states are requiring out of state organizations to collect and remit sales tax. Nonprofits may be required to register to do business in these jurisdictions, as many states require this as a prerequisite to registering for a sales tax account. This may create recurring compliance filings, such as annual reports and financial statements for your organization.

Additionally, AAFCPAs advises our nonprofit clients to stay up-to-date on the different state’s economic nexus thresholds, as well as any registration and compliance requirements for both purchases and sales.

AAFCPAs advises nonprofit clients on all compliance, collection, and remittance issues surrounding this monumental shift in precedent following the Wayfair decision. If you have any questions please contact Christopher Consoletti, Esq. at 774.512.4180, cconsoletti@nullaafcpa.com; Julie Chevalier, CPA at 774.512.4037, jchevalier@nullaafcpa.com; or your AAFCPAs Partner.

About the Authors

Chris Consoletti
Chris, in conjunction with our multi-disciplinary team of CPAs, investment & business advisors, provides effective tax planning and research, tax compliance, charitable planning, and asset protection solutions for individuals and their families, trusts & estates, nonprofits & foundations, corporations and partnerships. He has expertise in tax law pertaining to wealth preservation vehicles and will use all of the rules under the law to ensure that AAFCPAs’ clients have every opportunity to protect and save their assets. He engages clients in in-depth discussions to identify what assets need to be shielded, and what current measures are in place for risk management. 
Julie Chevalier, CPA
Julie is responsible for ensuring that clients minimize tax obligations with cutting-edge solutions based upon proven effective and reliable tax expertise.  Her skills are concentrated on state and local taxation (SALT), including: income, franchise, property, payroll and sales and use taxes. She delivers compliance, tax consulting and tax planning solutions for individuals and privately-held businesses in a variety of industries, including: retail, professional services, technology, software, publishing, manufacturing and nonprofit entities. She is highly-sought after for her knowledge on issues related to: physical presence versus economic nexus; state apportionment; tax exposure in relation to FIN 48 financial reporting; and the tax implications of multi-state transactions, such as: mergers, acquisitions, expansions and relocations.