State Sales Tax Implications
for Manufacturers

In June 2018, the United States Supreme Court issued a decision in South Dakota v. Wayfair, Inc . The decision overturned prior precedent and allows a state to impose sales tax on transactions from out-of-state sellers, even if the company has no physical presence in that state. At first glance, the decision appears to be aimed primarily at the evolving e-commerce retail environment; however, it also has significant implications for manufacturers.

Manufacturers should consider the following:

Sales Tax Compliance and Filing Requirements Even if the majority of your sales are to exempt manufacturers and wholesalers, that does not mean there is not a filing requirement. If it is determined that you have nexus for sales tax purposes, many states will require you to register and file sales tax returns, even when there is no tax due.

Sales Tax Exemption Certificates – A sale is only exempt from sales tax if it is specifically excluded by law or if the customer has provided an exemption or resale certificate. Manufacturers should collect exemption certificates from customers in all states in which they have economic nexus. The management and retention of exemption certificates may pose a new administrative burden for your tax department, as some states use specific exemption certificates which may have expiration dates and need to be renewed periodically.

Monitoring Accounts Payable – Vendors and suppliers are also subject to the new requirements and may respond by changing the way they invoice you. Your accounts payable department needs to be aware of the potential changes and should monitor invoices to avoid errors where vendors may be erroneously charging for sales tax. For purchases that are subject to sales tax, companies should be mindful of the potential for double taxation, a situation that can easily occur through the remittance of use tax on invoices from vendors that did not previously charge sales tax. 

Many states are responding to Wayfair by updating their laws and eliminating or revising the physical presence standards for purposes of sales tax nexus. Manufacturers need to proactively respond by evaluating the nexus requirements in all states in which they currently have sales.
Contact Kevin Highlander, CPA at kevin.highlander@actcpas.com , Barbara Provance, CPA at barbara.provance@actcpas.com, or your ACT representative to discuss how Wayfair may impact your business or for further information.