Case Study: Remote Sellers
BACKGROUND
ABC Company was a successful seller of nutritional food products, marketed through multiple sales channels, including their website, Walmart, Costco, and several distributors. The company had attracted the attention of large conglomerates who were interested in acquiring it due to its impressive sales and brand recognition throughout the United States. However, during the due diligence process, it was discovered that ABC Company had only registered for sales tax in one state and had not been collecting or remitting sales tax on any of their online sales. To address this issue, the acquiring company required immediate registration in all relevant states, remediation of any back taxes owed, and the avoidance of any possible penalties.
CHALLENGE
ABC Company faced several challenges related to sales tax exposure. Their online sales data lacked detail, making it difficult to determine taxability and local sales location information. Moreover, they had various sales through marketplace facilitators such as Amazon.com during the period when marketplace facilitator taxing responsibilities were changed in many states. The taxability was complex, and the data was not easy to pull. The taxing responsibility rules changed during the periods they owed back taxes, and the acquiring company wanted to get registered and start paying sales tax as soon as possible.
SOLUTION
Mo was appointed to lead the project and complete it within a reasonable timeframe. He immediately began an economic nexus study to determine where ABC Company needed to register and file sales tax. He had several conversations with their product teams to understand the specific nature of the products, performed sales tax research, and put together a detailed sales tax matrix for all 46 taxing state jurisdictions. Once the taxability was determined and where they had nexus, a tax exposure analysis was conducted with interest and penalty estimates included to determine the total tax exposure for each state during the period of noncompliance.
Based on this information, ABC Company, with Mo's advice, determined which states to register immediately and which states to enter into a voluntary disclosure agreement to try and limit the lookback period and abate penalties. Over several months, Mo led the voluntary disclosure agreement negotiations with 26 states.
RESULTS
ABC Company was able to register in all taxing jurisdictions, avoid paying penalties in all states, and become compliant in all states, collecting and remitting tax on the appropriate taxable products. The acquirer was pleased with the progress and eventually acquired ABC Company.
CONCLUSION
ABC Company faced a significant sales tax compliance challenge that could have potentially jeopardized its acquisition by a large conglomerate. However, the company was able to overcome the challenge by engaging Mo to lead the project and conduct an economic nexus study, perform sales tax research, and negotiate voluntary disclosure agreements with 26 states.
As a result, ABC Company was able to register in all taxing jurisdictions, become compliant in all states, avoid paying penalties in all states, and eventually be acquired by the conglomerate. The successful resolution of this complex sales tax compliance issue highlights the importance of having a clear understanding of sales tax laws and regulations and the value of engaging experts to navigate the complexities of sales tax compliance.
AT A GLANCE
CHALLENGES
Lack of detailed sales data for online sales
Complex taxability rules and changing marketplace facilitator taxing responsibilities
Noncompliance with sales tax regulations in multiple states
BENEFITS
In-depth knowledge and expertise in sales tax compliance
Ability to conduct economic nexus studies and sales tax research
Experience in negotiating voluntary disclosure agreements
TIME AND RESOURCE SAVINGS
Able to complete the project within a reasonable timeframe
Avoided potential penalties in all states
Enabled ABC Company to become compliant in all taxing jurisdictions
FINANCIAL SAVINGS
Avoided penalties in all states
Limited the lookback period through voluntary disclosure agreements
EXPERTISE
Extensive knowledge of sales tax laws and regulations across multiple states
Experience conducting economic nexus studies and sales tax research
Proficient in identifying and addressing potential sales tax exposure and developing remediation plans
Skilled in negotiating voluntary disclosure agreements with state taxing authorities
Familiarity with various sales tax compliance software and tools
ADDITIONAL BENEFITS
Facilitated the acquisition of ABC Company by a large conglomerate
OUR MISSION
What sets us apart from other sales tax consulting firms is our commitment to offering top-notch services without charging exorbitant fees typical of other firms.
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We believe that every business deserves quality sales tax consulting that is accessible and affordable, and we have built our practice around this core value.
