The Impact of South Dakota vs. Wayfair on Sales Tax Compliance Thank you for joining us today on The Impact of South Dakota vs. Wayfair on Sales Tax Compliance”. We’ll discuss what the recent tax landscape changes have been. As a disclaimer, please note that today’s presentation is merely an overview, not a substitute for professional legal tax advice. You should consult with your tax advisor for more detailed answers. Paul Weese, Partner Sales Manager – Microsoft Dynamics GPUG - Tacoma - 8/10/2018 1

Supreme Court ruling: South Dakota vs. Wayfair Economic nexus Q&A Sales tax nexus Supreme Court ruling: South Dakota vs. Wayfair Economic nexus Q&A Here’s what we’ll cover today.

It’s more than just tax rates… And sales tax is confusing. There’s a common misconception that it’s is all about finding the correct tax rate. But that’s only the tip of the iceberg. Sales tax brings these additional challenges: To do sales tax right, you need to know where you have nexus. You need to know in which states you’re required to collect and remit sales tax. And you need to know in which states your product is taxed, and how it’s taxed in certain situations such as bundled shipments, tax holidays, etc. There are over 16,000 tax jurisdictions across the country! If you’re doing business B2B, you’re not on the hook for collecting and remitting sales tax. But you must provide exemption certificates to prove it. Every month or quarter, you need to prep and file state and local tax returns. You need to be ready in case an auditor comes knocking, with the reports and info that he or she is looking for. ©Avalara. Confidential and proprietary.

The nexus challenge for merchants Maintenance / service / repairs Marketing / web advertising Multistate locations Trade shows Owned / leased real property Direct / online sales Manufacturer’s reps Licenses / royalties / fees Hosted data centers Field sales / service staff Investors / board meetings Inventory location The first challenge is nexus, which until recently was defined as having a “physical presence” in a state. Exactly what defines “physical presence” can be confusing. All of these examples cause a company to have nexus. Affiliates ©Avalara. Confidential and proprietary.

“Because the physical presence of Quill is unsound and incorrect, Quill Corp. v. North Dakota, 504 U.S. 298, and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753, are overturned.” Then this happened… South Dakota vs. wayfair, inc., et al. No. 17-494. Argued April 17, 2018 – Decided June 21, 2018

Economic Nexus

ECONOMIC NEXUS WHAT IS IT? Economic nexus is a tax collection obligation imposed on sellers based on their level of economic activity within a state. Unlike physical presence, it is based entirely on sales revenue, transaction volume, or both. Like most sales tax laws, economic nexus criteria vary by state. All aim to level the playing field between non-collecting out-of-state sellers and brick-and-mortar businesses. What’s economic nexus? It is a tax collection obligation imposed on sellers based on their level of economic activity within a state. Unlike physical presence, it is based entirely on sales revenue, transaction volume, or both. Like most sales tax laws, economic nexus criteria vary by state. All aim to level the playing field between non-collecting out-of-state sellers and brick-and-mortar businesses. 7

South Dakota vs. Wayfair, Inc. ruling details Affected: Remote sellers not currently registered with the state who meet threshold requirements Annual sales in excess of $100,000 or 200 transactions into South Dakota Effective date: TBD. South Dakota has not published or explicitly stated when their law will go into effect. There will be no immediate collection enforcement. Most impactful is that the “physical presence” rule has been overturned. Who’s affected? All remote sellers both online and offline not registered with South Dakota who meet their threshold requirements. The effective date is to be determined though as South Dakota has not published or explicitly stated when their law will go into effect. The most important takeaway here, however, is that the physical presence rule was overturned. ©Avalara. Confidential and proprietary.

South Dakota vs. Wayfair, Inc. ruling details If I’m already registered in South Dakota, does this court decision apply to me? This ruling will not affect any company already registered and collecting in South Dakota. Does the ruling only apply to online transactions? No. The ruling applies to online and offline sales. Does the economic nexus rule apply to non-taxable transactions? The ruling does not change what is or isn’t taxable. Couple of questions you might have right now: If I’m already registered in South Dakota, does this court decision apply to me? This ruling will not affect any company already registered and collecting in South Dakota. Does the ruling only apply to online transactions? No. The ruling applies to online and offline sales. Does the economic nexus rule apply to non-taxable transactions? The ruling does not change what is or isn’t taxable. ©Avalara. Confidential and proprietary.

South Dakota vs. Wayfair, Inc. ruling details The ruling adds economic nexus to the existing list of nexus-creating activities. South Dakota’s law applies to taxable sales made to consumers. It: Does not change what is tax exempt Will apply to service providers (not just tangible personal property) as South Dakota taxes many services Will apply to manufacturers and wholesalers who sell direct to consumers The ruling merely added economic nexus to the existing list of nexus-creating activities. Nexus is still enforced when companies have substantial physical presence in another state. South Dakota has one of the broadest tax bases of any state. This law applies to taxable sales made to consumers overall and will apply to service providers as the state taxes many services as well as manufacturers & wholesalers who sell direct. ©Avalara. Confidential and proprietary.

States in action post-ruling Prepare your business for this new wave of changes Prior to the ruling, there were states which already had economic nexus laws but more are adopting new laws. July 1, 2018 – Hawaii, Vermont October 1, 2018 – Alabama, Illinois, North Dakota, Wisconsin, Indiana, Kentucky, Minnesota December 1, 2018 – Connecticut January 1, 2019 – Georgia, Iowa, Utah, Nebraska All of these states have different statutory start dates and sales/transactions requirements that trigger nexus. South Dakota was the first to get permission from the court but several other states are following their lead with similar economic nexus rules. Here’s a visual overview of states that have various nexus laws in place as of July 2018. You’ll notice that there are a number of states without those laws in place. It’s possible that will change over the next few months. We’re already seeing some states in action after the South Dakota v. Wayfair, Inc. ruling. Vermont, Kentucky, and Hawaii have laws that took effect July 1st, less than 10 days after the ruling was made. ©Avalara. Confidential and proprietary.

“What should I do?” Now you’re wondering, “What should I do?”

What should I do? When do I register? Get expert counsel to determine how you’re impacted Don’t panic. Contact your SALT CPA or attorney tax advisor – seek counsel on all nexus related requirements and laws. Don’t have one? Avalara has an extensive directory of tax experts and SALT CPAs who could work with you You’ll need to understand the changing tax obligations. If you have a trusted SALT CPA or attorney tax advisor to counsel you, that’d be a great starting point.

Resources to reference Hub: https://www.avalara.com/us/en/learn/sales-tax/South-Dakota-Wayfair.html FAQ guide Economic Nexus guide Expert videos and blog (All images on this page have live links) We’ve also got several resources you can reference at our South Dakota vs. Wayfair online hub including an FAQ guide, economic nexus guide, expert videos, and expert blog articles. ©Avalara. Confidential and proprietary.

Who paid attention?  In your own words, can you define economic nexus? What are South Dakota’s economic nexus thresholds? ©Avalara. Confidential and proprietary.

Q&A With all of that being said, let’s check on your questions. If you haven’t already submitted questions in Chat or the Q&A, please do so now.

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