The Importance of Sales & Use Tax Insert date

Agenda Why A Sales & Use Tax Discussion Now Changing Sales & Use Tax Legislation   What's Changed What This Means For Your Business How Our Firm Can Help Next Steps

Why A Sales & Use Tax Discussion Now As your trusted advisor, it’s important for our firm to continue to keep you up to date on tax changes and implications of the impact on your business Over the last year, the regulatory environment around sales & use tax has shifted, bringing more focus & attention Let Our Firm Be Your Guide Talking Points: Sales & use tax is not new and has been around for some time, however as your trusted advisor it is important that we keep you up to date with current changes that may impact your business. Over the last year there have been regulatory changes that might impact where you are collecting and remitting sales tax. We will walk you through the changes that have taken place, explain how it impacts your business, and how we can consult you moving forward.

Changing Sales & Use Tax Legislation Before South Dakota v. Wayfair there was Quill Law of the Land, decided in 1992 Nexus defined: a business must have a “physical presence” in a state to collect sales tax Many states challenged Quill South Dakota was most aggressive Changing Legislation: South Dakota v. Wayfair (6/2018) Ruling overturned Quill Expanded the definition of nexus to include economic presence as a determining factor in which businesses are liable to collect & remit sales & use tax Talking Points: Before South Dakota vs. Wayfair: Quill was the law of the land which was decided by SCOTUS in 1992. Nexus was defined as a business having a “physical presence” in a state, which would mean they are required to collect sales tax. - South Dakota was most successful in challenging this decision, as SCOTUS accepted the case of South Dakota vs. Wayfair and made their decision in June of 2018. 2) Changing Legislation: South Dakota v. Wayfair (6/2018): This ruling overturned Quill and expanded the definition of nexus to include economic presence as a factor in Nexus determination. In the 10 months since this decision we have seen states update and change their economic nexus reporting standards to include updated economic nexus thresholds.

What’s Changed Jurisdictions enforcing new economic nexus guidelines As of April 2019, 38 states have enacted economic nexus reporting Economic thresholds are defined by total gross revenue and/or number of transactions, with each jurisdiction having unique thresholds With the ability to collect from online transactions, jurisdictions are estimated to collect an estimated $8-$23 billion in new taxes across the US Jurisdictions hiring more auditors Wisconsin Department of Revenue hired 102 new auditors and increased their division by one-third, generating an estimate of $88 million in additional revenue California has added 100 new auditors and will generate an estimate of $371 million in additional revenue each year Talking Points: Jurisdictions enforcing new economic nexus guidelines: Since the decision back in 6/2018 states have made updates and changes to their economic nexus guidelines. This is something that we will continue to see happen as many jurisdictions are evaluating how they will react to the SCOTUS decision. These economic thresholds are defined by total gross revenue and/or the number of transactions in each jurisdiction. What causes confusion is that each jurisdiction has unique thresholds that they have defined. Now that the definition of Nexus has been expanded jurisdictions across the US are estimated to collect an additional $8-23 billion in new revenue. Jurisdictions are also hiring more auditors to find businesses that are non compliant. An example of that would be Wisconsin and California who are estimated to increase their additional revenue in the millions because they have more boots on the ground. Sources: Vertex “State Sales Tax Changes”, “Sales and Use Tax Audits Uncovered” A joint study by Avalara and Peisner Johnson & Company, Vertex Webcast “New Online Sales Tax Reality: Navigating the Post-Wayfair World”

What This Means For Your Business Small to mid-size businesses are at a higher risk of audit Noncompliance: Audit Exposure Average audit can last anywhere from 30 - 45 days, with an auditor onsite anywhere between 2 - 4 weeks Average cost of an audit (penalties, interest, fees) $114,000, not including lost productivity Complexity As a business, are you aware of? 11,000 unique jurisdictions More than 60,000 unique taxability rates & rules On average more than 600 rate & rule changes each year Talking Points: 1) As you can see there is more activity with sales & use tax and jurisdictions are much more aggressive. We want to ensure that you are aware that you could be at a higher risk of audit. A SUT (sales & use) tax audit can be stressful on a business as the auditor could be in your office anywhere between 2-4 week and it could last up to 45 days. We also want to help you avoid the average costs of the audit. On average an audit could cost a business $114,000, that includes penalties, interest, and fees. What this doesn’t include is the cost of productivity to your business. 2) Many businesses find SUT very confusing because of the complexity. Unfortunately, we don’t have a national sales tax and because of that we have 11,000+ jurisdictions that all have their own rates and rules. As businesses are expanding outside their home jurisdiction many find themselves in unfamiliar jurisdictions that have very complex rates and rules. It is very hard to understand and keep up with what is accurate when calculating sales & use tax. In the US alone we have over unique 60,000 taxability rates & rules with on average 600 rates & rules changes per year. Sources: “Sales and Use Tax Audits Uncovered” A joint study by Avalara and Peisner Johnson & Company

Is Your Business Impacted? Does your company: Sell through traditional business channels and/or remotely Sell multiple products & services with special taxability Sell through multiple distribution centers Sell through online marketplaces Have sales clearly exempt from sales tax – need to collect and track exemption certificates in all states Manage use tax This decision impacts all businesses in all industries that sell products and/or services Talking Points: We have complied a list to help us understand how vulnerable your business may be. We would like to walk through this check list with you and get a better understanding of where those vulnerabilities may fall. Open a discussion with the client around what they are selling, how they are selling it, where they are selling and how they currently are managing sales & use tax.

What’s The Impact For You? States can now collect tax on remote transactions Businesses must track their sales, including both number of transactions and annual gross revenue, along with all tax law changes Businesses must create a strategic plan to stay compliant Talking Points: In summary the major impacts to you and your business from all of this are: States can now collect tax on remote transactions: Are you confident that you are collecting and remitting in all of the right jurisdictions How are you tracking all sales, are you keeping track of the # of transactions and or gross revenue in each jurisdiction that you sell in? It is more important than ever that as a business you create a strategic plan to stay compliant – Our firm can provide you the guidance, tools and services to help you stay in compliance

How Our Firm Can Help Through a comprehensive review of your most up to date sales activity, our firm will develop a strategy for compliance by: Providing nexus studies & product taxability reviews Defining in which jurisdictions your business is most vulnerable Create a plan to register, collect and remit sales & use tax Providing a technology solution to automate and save time managing SUT compliance  SUT Services powered by Vertex  Maintaining SUT compliance through ongoing evaluations Talking Points: Our firm will help you by completing a comprehensive review of your current sales activity and will provide the following services to you: Nexus studies & product taxability reviews: It is important that we do an analysis of your current sales activity including where you are collecting and if there are any jurisdictions that you should be collecting that you are not collecting and remitting. We will also evaluate any special products or services that you sell that may have special taxability rules or rates to ensure those are calculated correctly. This will create a solid foundation to ensure that you will be compliant in all jurisdictions in which you are doing business. Special Note: If you firm is unable to provide SUT advisory services for any reason. CPA.com has partnerships with firms that provide SUT advisory services and will assist your firm with these services 2) Define the jurisdictions your business is most vulnerable We will provide to you an analysis of what jurisdictions you should be registered, collecting and remitting. If there are any jurisdictions outlined where you are not registered, we will put together a strategic plan to help you register, collect and remit sales and use tax 3) Provide a technology solution to automate and save time managing SUT compliance * special note: (these talking points could and will differ based on client, this is an example of what it might be) The services that we provide at our firm are powered by Vertex which is a comprehensive SUT automation system. We will evaluate your needs based on the analysis above and set you up with the integrated tools needed to properly calculate sales and use tax as well provide you returns services. We will take the burden and liability off of you and will submit your returns to the appropriate jurisdictions as well as handle the ACH money movement and notices for those returns. 4) Maintain SUT compliance through ongoing evaluations It is important moving forward that we continue to provide you the guidance that you need as your business continues to grow. If you expand either your products or services and or expand to new jurisdictions it is important we evaluate how that impacts your vulnerability with SUT. We will periodically connect with you to understand what has changed.

SUT Services Powered By Vertex Through automated technology our firm can provide any of the following SUT compliance services: Integrated Sales Tax Calculation Apply real time sales tax calculations by integrating with multiple interfaces Consumer Use Tax Calculate consumer use tax and file your consumer use tax returns Exemption Certificate Management Store, update, and maintain exemption certificates in one easily accessible location Return Prep and Filing Using your tax data, our firm can prepare, generate and file your tax returns to jurisdictions Talking Points: As I mentioned our SUT services our powered by Vertex and this slide gives you a good idea of the different type of compliance services we can provide to you. We can discuss each one and define which are most important based on your needs.

Next Steps Talking Points: Questions Defining Next Steps