In the Wake of South Dakota v. Wayfair, Inc., Manufacturers Face Increased Pressure to Meet Growing Compliance Requirements with Limited Resources All While Avoiding Substantial Audit Assessments
Every state has established economic nexus standards in the aftermath of the landmark 2018 Supreme Court decision in South Dakota v. Wayfair, Inc. placing increased sales tax compliance responsibilities, even in the absence of a physical presence. The Manufacturers Alliance Foundation and Sovos released “The Changing Landscape for Sales and Use Tax Strategies,” a new report that shows the extent to which tax compliance challenges are driving increasingly sophisticated process changes for manufacturers.
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The decision in South Dakota v. Wayfair, Inc. opened the door to increased sales and use tax collection obligations across the country. With the rapid rise of online sales, and the fact that manufacturers are increasingly investing in e-commerce as a path to growth, companies now see a significantly greater need to effectively and efficiently meet a nationwide compliance obligation.
“With over 12,000 sales tax jurisdictions with their own rates and each state having different rules, the 2018 case really increased the need for more effective, streamlined compliance for tax departments,” Manufacturers Alliance spokesperson Marie Lee observed.
The new joint research by Sovos and the Manufacturers Alliance Foundation assessed the implications of this new pressure on manufacturers. The study, which included a survey of more than 70 tax leaders in manufacturing, led to five findings that reflect key considerations for leaders making sales and use tax-related decisions:
- Improving efficiency in sales and use tax compliance and integrating sales tax technology are key priorities for manufacturers – These two areas were the top selections by far among respondents when asked what their key sales and use tax priorities were for the next year. The notion that thoughtful and targeted expansion of tax technology solutions can meaningfully move the needle on efficiency seems well-established within the industry.
- Business strategy and technology change add considerable complexity to sales and use tax compliance – Overall, 44% of executives reported that changes in business strategy (for example, M&A) added significant complexity to the tax compliance process. Technology change (for example, migrating to a different ERP system) followed at 35%.
- Streamlining sales and use tax processes is more important than ever – Two-thirds (67%) of executives noted that reducing manual effort in the sales and use tax compliance process was their top priority for next year. Other streamlining priorities, such as integrating tax information from disparate sources were also key priorities.
- Sales and use tax audits are increasing – In the new environment, manufacturing executives are forecasting an increase in the frequency of sales and use tax audits, with 78% anticipating more audits in the next 12 to 36 months.
- Investing in additional technologies and analytics is a top priority in expanding sales and use tax compliance – A majority of executives stated that investing in additional sales and use tax technology was their most important strategy over the year.
“Sales tax audits, as we know them, are destined to become a relic of the past. It’s only a matter of time before governments embrace technology enabling an entirely digital audit experience. When human capacity no longer constrains how expansively and extensively states can audit, sellers should be ready for a dramatic uptick in audit frequency,” says Charles Maniace, VP of Regulatory Analysis & Design at Sovos.
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