US tax law changes – implications on Australian businesses

US tax law changes – implications for Australia

The US Supreme Court has determined that online retailers will now need to collect and pay Sales Tax in its states, even without a bricks and mortar store. Here we look at what Australian companies need to do to prepare.

Ben Scull

Director, Tax Technology

KPMG Australia

Hands typing on laptop and holding credit card

A recent decision by the United States Supreme Court (South Dakota versus Wayfair Inc.) has serious implications for Australian ecommerce businesses that sell into the country.

The narrow decision (5-4) in June 2018 has determined that businesses selling online into the US are now liable to pay state sales taxes.

It overrules the 1992 Quill versus North Dakota decision, which made businesses without a ‘physical presence’ in a state exempt.

Now, each of the US’s 50 states can charge online retailers its own rate of sales tax, and those rates can be changed frequently. It is a much more complex system than in Australia, which has a flat rate for GST.

North Dakota was so keen to take up the opportunity that it implemented the change on 1 July 2018.

While Australian business may have a few months before the rest of the states catch up, it is important to be aware of the changes, how they could impact your organisation, and what options you have to get on the front foot.

What does the law change entail?

The law applies to all Australian businesses that sell into the US online. States in America can now lawfully tax any Australian ecommerce retailers on certain conditions such as:

  • sales of at least $100,000 from outside the State
  • at least 200 individual sales transactions to the State.

Marketing activities can be taxed such as:

  • displaying advertisements
  • advertising by means of print, radio, or television media
  • communicating by mail, internet or telephone.

Companies will need to make sure that their technology, accounting systems, and compliance understanding are fit to handle the change.

Added complexities

If a business sells a good into the US online, determining the correct sales tax could be quite challenging. It could be based on the product, or the state and the county and the district it is being sold into.

Adding to the complexity, the states can change their rates when they determine, and there are different filing dates.

Therefore, a company’s online operation and accounting systems need to be able to make these calculations in real time when someone purchases online, and be prepared for paying the right amounts to the states at the right times.

Asking the right questions

Australian companies need to firstly consider whether it is commercially viable to continue to sell their goods to the US. Smaller businesses in particular will need to calculate if the cost of updating systems, and paying the new tax is worth it.

If you do decide that the US is an important area of commerce for your business, the next questions to ask are, how do you get the correct rates into your system to make sure you can charge the correct amount of sales tax in real time? And what tools do you need to seamlessly file a return to the local authority?

To support sales tax and compliance, companies will need a system capable of tracking delivery locations, determining taxability, identifying tax rates, ensuring appropriate accounting, and providing the information required to file returns.

Companies will also need to consider how indirect tax compliance is handled, whether the processes are scalable to meet increased demands, and whether the technology (if any) underlying those processes is well-suited to the task.

KPMG’s US reach

At KPMG, we work with KPMG in the United States sales and tax team to make sales tax compliance in the US efficient.

Some companies may decide to outsource certain pieces of the compliance process to KPMG, while others may consider implementing a new tax engine, or upgrading a legacy tax engine, to ensure greater control and adaptability to their unique needs.

KPMG is well-placed to help you understand the potential impact of the changes to your business, the best management approach to suit, and to support implementation to allow you to continue your sales journey in the US.

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