Dave Kelly 3:12
That’s right. Before we bring on our guests, Rolando, we want to give big props to a partner of ours out there. Okay, go for it. Dave, listen, really want to get big props to the folks over at Poly. Especially me, Israel, Israel. Thank you so much. Listen, these guys are fantastic. We’ve been a partner for Poly formerly Plantronics for a very long time. We love and trust their solutions. More importantly, our customers love their solutions. But miserable. Thank you so much. You guys are launching a new product. It’s called the Poly what is that the Poly
Rolando Rosas 3:49
v 360. Say that three times faster.
Dave Kelly 3:53
And I’d say these are commercial wallet it earbuds for professional phone calls professional voice and also for listening to audio. Thank you so much Israel for sending us some Demo units. I’ve been using them for about a week now. I’m absolutely in love with them pretty soon volando and I will start some products. Some comparisons. And listen, I can’t wait to get some of those done. We always have fun doing those comparison videos Rolando.
Rolando Rosas 4:22
No doubt man I love it the car, dialing up the computer, getting on and making sure that the stuff actually works as advertised. You don’t just do check one two, can you hear me kind of test which you see everywhere? Yeah, do those actually see it work in real world situations not just sitting down at a desk doing like one to like what you may see elsewhere.
Dave Kelly 4:44
So let’s, if people are out there and they want to see some more product demos and comparisons in real life work from anywhere environments like Rolando was mentioned, check out our YouTube channel youtube.com/globalteckworldwide Look at some of these comparison videos, demos. If you like it like and subscribe, give us a thumbs up. And now for Lando, back to you.
Rolando Rosas 5:07
All right, thank you, Dave. You know, today we’ve got someone that will, like I said earlier, will save you a ton of frustration time renovation, and potentially 1000s, if not 10s, or hundreds of 1000s. Because we have some really big brands that listen to us. And they could potentially save hundreds of 1000s of dollars by just listening to what Mike has to say today. So if you want the full experience today, I will remind you to use your headphones because we will be throwing in some special effects and everything else. And you’ll get that ball rich experience if you’re listening to us on the podcast. So let me tell you a little bit about Mike Fleming before he comes on. So Mike’s state tax knowledge is well rounded. And he has helped 1000s of companies of all sizes in industry. He’s especially well known for his work in the e Commerce Industry, and is the founder of Sales Tax and More Sales Tax and More is a full service consulting and solutions firm. Their team is experienced with tax professionals, seasoned tax professionals who are dedicated to fulfilling your state tax and related needs. I believe he also does stuff with north of the border in Canada. So if you’re interested in that he handles that too. They do sales, tax returns, registrations consultations research a whole lot more. I’ll let him jump in and talk about what else they provide. So let’s welcome to the show. Mike Fleming.
Michael Fleming 6:47
Hey, Mike. I guys, thanks for having me today.
Rolando Rosas 6:52
Hi, we love talking to you. And we really love that you’re on today because there’s so much going on. In the E commerce space. The Supreme Court decision with Wayfarer really kicked off a lot of aggravation for sellers that are selling online, whether they’re selling on their own website or selling through one of the marketplaces like Amazon. And so a lot has changed since the decision a lot, both in the marketplace side and a lot of responsibilities for sellers. Before we jump into talking about things that are costly that you can help our audience with. I want to ask you what tech is bubbling under the surface that you’re fascinated with? Or you’ve been researching or just geeking out on right now.
Michael Fleming 7:40
It’s kind of be this AI seems to be all over the news right now. And a lot of people are a little bit worried about if you get that science fiction aspect though we go into Terminator
Rolando Rosas 7:51
Skynet is taking over. Yeah, exactly. So you’re saying you’re geeking out on AI Artificial Intelligence, I find that fascinating. It is. It is evolving rapidly, Mike. And we use ChatGPT and several other applications in house we actually have given because St. ChatGPT. Every day is often as we communicate internally, it’s hard. So we just call them we get it. We call him Eddie. We call him Eddie. So if we got if somebody says Eddie in a conversation, we all know internally what we’re talking about, just as ChatGPT saying that 40 times a day is hard on my tongue. Wow. Yeah, so we just given him a name, Eddie. So Eddie does pitch in and help out with a bunch of things. I know you personally you’ve worked with a bunch of companies. If you were to start off talking to an Amazon seller, and somebody is on the marketplace, I’m gonna want I want you to fill in the blank here for me. I’m gonna give you a statement and I’m gonna tell you blank. So fill in the blank for me, my Amazon sellers should never blank. I’ll repeat it again for you. Amazon sellers should never blank what would you fill the blank and with
Michael Fleming 9:07
should never pay sales tax.
Rolando Rosas 9:11
All right. Amazon sellers should never pay sales tax. All right. Tell us more about that. Why is that?
Michael Fleming 9:18
You know, when Wayfarer happened, there was a lot of bad news for E commerce in general. You got to collect tax and a lot more places. But for marketplace sellers and Amazon is a marketplace platform. They’re the ones responsible for collecting and remitting the tax. Amazon sellers no longer have to worry about or eBay sellers anyone selling on a marketplace. They don’t have to worry about collecting and remitting the tax any
Rolando Rosas 9:48
which is awesome and other kinds of frustration before right. It’s remit to all these different states.
Michael Fleming 9:55
Absolutely. After selling on another platform in addition to a Amazon, you still got some of those issues. But when I say another platform like Shopify, Shopify is not considered a marketplace, so you do have to be concerned about collecting and remitting the taxes, if you have some sort of link or connection with the state and call that link or connection Nexus, a lot of ways Wayfair actually did some ecommerce sellers a big favor, and others not so much.
Rolando Rosas 10:29
And for those who aren’t familiar, just give us a quick summary on what Wayfair for those folks that maybe you’re just discovering this for the first time, what was the wayfarer decision? What was it about that caused this big change?
Michael Fleming 10:42
There was a South Dakota, and they went after Wayfair. And they said that if you have $100,000, or 200 transactions in our state, that’s enough of a connection with our state, it doesn’t have to be physical anymore. We think this economic Nexus, this connection, this amount of sales or transactions, is enough to require you to collect and remit our sales tax. And they went all the way to the Supreme Court. And the Supreme Court surprisingly sided with South Dakota. And they said, Yeah, and you don’t need a physical presence anymore. As a matter of fact, it’s not because time has changed, we made a mistake, we never should have used the term physical presence to begin with. So it’s like all those other cases that said you needed a physical presence, it’s likely never happened. So physical presence is still out there. But it’s not the only way you can have a requirement to collect and remit taxes. Now, it could just be by selling into a state once you cross a certain threshold. And the states never make it easy.
Rolando Rosas 12:01
Right. And since we don’t operate like in some other countries, like maybe France or other locations, where their provinces, they are all operating under the same system, all the states are collecting or provinces may be correct collecting the same amount of tax, or all funneled through the federal system and then redistributed back to the provinces. We have this hodgepodge collection of states that can do whatever they want and determine what a physical presence is and what it means defined by their state law. And Mike, before we jump into that, because this is such a tricky, thorny issue. And I know you and I, when we were first conversing about it is just like my head was spinning, especially when we get into the Nexus aspect of the inventory aspect and what constitutes physical. I want to probe your brain with a segment we call our best kept secrets.
AI 12:54
Well kept secrets, well, secrets. Gotta keep them safe. And sound. Well, let’s see, perceivers are just like Dima.
Rolando Rosas 13:10
We want to thank Eddie, for putting that together for us. They put together this composition. Oh, want to give Eddie props on that one big props to Eddie. So, Mike. There are some secrets here that most people don’t know, that can help them avoid costly either litigation or hot water when it comes to the states. Let’s jump into that because that’s where you’re kind of going into. And I know that when it comes to start with physical presence. What is it about physical presence that people don’t know about that’s happening either right now, in real time, or has happened, where it’s chipping up a lot of people in business.
Michael Fleming 13:58
You touched on it a little bit inventory, even though Amazon is collecting and remitting the sales tax. If you’re selling on other platforms like a Shopify, that inventory and an Amazon warehouse can still create nexus for you. A lot of people don’t realize that he still many states, especially California, and Florida and Illinois, and some states have modified their position. So that if like Texas, if you only have inventory in a Texas warehouse, and that inventory is only being used for the Amazon’s sales, then it no longer creates the link or connection we call Nexus. But if you’re using that Amazon warehouse to fulfill some of your Shopify sales, now it does create nexus.
Rolando Rosas 14:52
Let’s pause on that because that’s an important aspect of this because this is for those people using multi channel handle Fulfillment by Amazon if you’re doing multi channel fulfillment on Amazon, and what you just said, is that if your inventory is in the state of Texas, and for whatever reason Amazon uses a warehouse in the state of Texas to ship out your order, whether it’s in or out of the state of Texas, you’ve got now some Nexus problems to be concerned about. That’s
Michael Fleming 15:26
correct. But you only have to worry about those problems in the state of Texas. All right. So Nexus just means that there’s a link or connection with that state. And therefore you may have a responsibility to collect tax in that state. And tax is usually sourced to the state where something is shipped. So you’ve got this nexus in Texas. Now, pretty much any of your sales that have shipped into Texas, there’s a responsibility no matter where it’s shipped from, to collect tax on those sales.
Rolando Rosas 16:05
And once Nexus is created in the state of Texas, I want to be clear on this too. This is heavy because Texas for even for us is in our top states of sales overall, every year, I have one unit of advice. That’s considered Nexus. Right? And if that order came in through my Shopify store, Amazon then shipped that on my behalf to a customer in or out of the state of Texas, that one unit constitutes Nexus, right?
Michael Fleming 16:34
In theory, yes, the states are not good at all at explaining what’s de minimis, here comes a protip. de minimis means a little. In other words, it’s so little, little it doesn’t meet the requirements. It’s an exception to the rules if it’s below a certain level. Now, some of the states talk about de minimis activities. But in some areas like trade show appearance, de minimis activities are spelled out very well in some states. But when it comes to something like inventory, a lot of states just, they don’t have a minimum, they said, You have inventory in our state, then that creates this link or connection with that state. We saw a court case in Pennsylvania. And they said that having inventory in a an Amazon warehouse in Pennsylvania, was not enough to create this Laker connection for sales tax. And a lot of people think that it doesn’t create nexus at all. But what Pennsylvania has been very active in doing is going after Amazon sellers for income tax. That’s one of the reasons why depends on type of company, they could go after individuals. If you’re a pastor entity, then they’re going to have to be individuals, if you’re a corporate entity, they’re going after the entity itself, ma’am, gotcha. So when it comes to sales tax, and this is important thing also, there’s individual responsibility. So if you’re not remitting your sales taxes, the state can actually come after you individually. In some states, you have to have collected and not permitted the tax. But in some states, if you just don’t collect the tax, even though you’re a corporation, the state can come after you personally. Personal liability is a big issue. And a lot of people just don’t understand. Sometimes people telling him I’ve just bankrupt my company. And sales taxes have
Rolando Rosas 18:41
liabilities, right? It’s just talked to people that have gotten in hot water. What happens in that situation, and people say things but actually happens, you know, you get in hot water. In this case of state, which is a little different than federal, we don’t have a VAT system, so they don’t collect tax that way. But the states like Pennsylvania that you’re just talking about, what are they doing? You say? I’m gonna just bankrupt so I don’t have to collect what happens. You
Michael Fleming 19:05
know, it used to be that even though we said we had national banks, they were really licensed in each individual state and was like having a bunch of different banks. Not so much nowadays. state like California will walk down to the local bank of America and put a lien on your assets. They’ll freeze your bank account, as the states have a lot more powers today than people give them credit for 30 years ago, they couldn’t do that. Today they can and people always fear the IRS. States are a lot more aggressive than the IRS is at this time. This is not the IRS at 30 years ago where they were taking people’s houses and everything else. But the states are very aggressive and sometimes they’ll work with you. If you can’t pay the buddy that they say that yo and other times. They want to make an example out of someone because Fear works in their favor.
Rolando Rosas 20:03
So that I could see that.
Dave Kelly 20:06
So Oh, my goodness. So what do you say about Amazon sellers that are shipping inventory to FBA? So we might ship to a warehouse that’s in Pennsylvania. And then Amazon may take that inventory and allocate it to multiple different warehouses. If you’re supposed to pay an income tax with where your products are being stored, how do you consult Amazon sellers on that aspect of it? Sometimes we know where we sent it. But we not necessarily know where it is, all the time. Is that a challenge? It had to challenge
Michael Fleming 20:45
but the state of Washington said, If I can tell where your inventory is, then you guys can figure it out. Also, there’s the inventory event detail reports, if you look at your sales reports, it’s telling you where it ships from. So there are ways to tell where your inventory is. It’s not easy. Amazon doesn’t make it easy. But there are ways that to tell income tax is an issue for larger sellers. It’s not an issue really for smaller sellers. And can you
Rolando Rosas 21:18
give reasons why? That’s definitely one of our other secrets. That would be secret number two, I would put a big point on that. Because is there maybe a hard rule that you when you’re consulting with your clients is there when you say larger sellers is that a million or more 5 million or more 10 million or more, where’s that number for that barometer?
Michael Fleming 21:38
It’s going to change all the time, because what your profit margins are going to have an impact on that. If you’re $100 million seller and you’re working on the 2% profit margin, then, you know, you may not have as big an issue as someone who’s $20 million seller with a 50% profit margin. So your profit margins, because income taxes are usually based upon your medic after expenses. So unlike sales taxes, which are based upon the gross revenue, the income taxes are after everything comes out, so it’s usually going to be a lot smaller number, and it’s going to be different for every seller, in general, California is going to say $500,000. If you’ve got $500,000 of sales in California, then that is when they want you to start paying income tax on a economic basis. But what you want to look at here is what’s your net income a portion to state like California, so the way that the income taxes work, is every state has what’s called an apportionment factor, California happens to be a single sales factor. So you take your sales in California divided by your sales everywhere, you come up with a percentage, and you apply that percentage to your net income. And that is going to be the amount of income that’s apportioned to the state of California. And then the taxes will be paid upon that amount.
Rolando Rosas 23:14
And does that depend on being in state or out of state doesn’t matter if you’re an in state registered or assay, you still gotta pay the percentage of your net income to California, because they’re saying a percentage of your sales came from California?
Michael Fleming 23:28
Correct. But it’s not every state. So some states don’t have a bright line economic Nexus when it comes to income tax, we’re starting to see that. And I think we’re going to be moving towards that. But right now, there’s 11, or 12 states, California is one of them. So what trips up Amazon sellers, is that California says, if you have inventory in our state, then automatically have to file the California franchise tax. That’s what they called their income tax. But let’s say that you’re a true remote seller that you’re selling on Shopify and you shipping everything into California. It started out at 500,000. I don’t know the actual number. Today, it’s adjusted every year for inflation, it’s low, six hundreds or something like that at this point. But if you’re over that threshold, that you also have to think about paying income tax. Now, it’s harder for them to find you when you’re over that threshold, because the Franchise Tax Board doesn’t speak very well with the California Department of tax and fee administration, which is
Rolando Rosas 24:41
these are two separate departments, the franchise folks or income tax folks, and the sales tax folks in the state of California. In the
Michael Fleming 24:49
state of California, most states it’s the same agencies state of California, two totally separate agencies. They don’t always speak very well with each other. So it’s harder for them to Know what your sales tax is? Because if they knew that, then they know your sales, approximately what they weren’t. So Miss
Rolando Rosas 25:08
man, that is, yeah, Smith Smith.
Michael Fleming 25:12
Here’s the other thing. What happens? If you’re selling a lot of wholesale? Well, you don’t have to worry about that for sales tax, but for income tax dip, it’s easier to get over that number. When you asked me earlier, what’s the line in the sand? You know, what’s a small seller? I usually can’t figure that out. Because materiality has to play into this also, with the cost of compliance is going to be greater than any penalty or interest you get, then why bother doing what the state says? Or it’s a small enough number? You know, if you ever get caught, you pay it out of your pocket? Now people say, what’s that number?
Rolando Rosas 25:52
What’s that number? Like, I want to keep as much money in my pocket and give away less of it. So it goes out of my pocket?
Michael Fleming 25:59
I wish I could answer that. But I use the Coca Cola example. $100,000 To Coca Cola, that’s like a rounding error. You know, that’s a very material number to them. To me. $100,000 is a whole lot of money. So that’s why it’s hard for me to put a number and we got to go back and what’s material to you? At what point do you say I have to pay attention to this? Because if the state did come after me, that’s a big number that would impact me. I wish you know, the penalty and interest on it. I wish I had paid this at the time. And
Rolando Rosas 26:37
I hadn’t you sit on that point. I think you mentioned this to me, or maybe you said this at some point along those lines that California specifically, they were doing a look back period, and retroactively, looking at penalties and interest. So it would behoove sellers to come out of the woodwork if that penalty and interest because they were looking back, not just the day you start filing, but they’re looking back to your history on sales tax. That could be a significant amount for some sellers, because it’s not just for what’s happened now. And you decide, Oh, I’m gonna get in compliance. They’re gonna go back, right?
Michael Fleming 27:11
Yeah, absolutely. And one of the things that California did is they got a list of sellers who had inventory in California, and they’re working their way through that list. So they’ve been coming after, still today. So they start out in 2018. And then they roll it forward from there, once you get 2018 taken care of, and they said, What about 2019? Now here’s where it pays really pays to be proactive rather than reactive gives credit your full approach?
Rolando Rosas 27:50
Why is it good to be proactive, instead of reactive in the state of California?
Michael Fleming 27:56
Less penalty, less interest, the state still gonna charge you a penalty and interest, okay. However, they start lumping all sorts of extra we contacted you. So therefore, there’s this much extreme penalty, if you didn’t pay within this amount of time, there’s this much extra penalty. So we want to limit the amount of penalty and interest, it’s better for you to contact the state, and let them know that you’re going to be filing. Now, there are also programs out there called Voluntary Disclosure agreements, if your exposure is big enough, you can reach out to the state and say, Hey, I owe income tax for the last five years, six years, seven years. And we want to come clean and the state will say, Okay, thank you very much. We’re going to waive the penalty. And we’re only going to go back this many years, depending on what state it is. So there’s a formal program.
Rolando Rosas 28:55
You’ve had success with your clients on this. And the you’ve I’ve talked about this, how states will are more forgiving. When you take that stance rather than Screw it. I won’t, or I’ll wait till they contact me about this. Oh, yeah.
Michael Fleming 29:08
I always wonder why people want to wait, because these problems are not. They’re just growing with time. And if you’re not registered, in theory, the state can go back to the first state you started doing business 2030 years ago. In reality, they don’t go back that far. In reality, they only go back seven, eight or 10 years. That’s what most states are. I say only tongue in cheek because seven eight or 10 years is still a long,
Rolando Rosas 29:43
depending on the sales right? It could be obsessed nificant chunk of DNA it’ll.
Dave Kelly 29:50
Yeah, I’m not surprised to hear California looking to collect their fair share of taxes. Makes a lot of sense. I think everyone would agree. I think they might even have the highest sales tax in the country today. They about 10%. The sales?
Michael Fleming 30:07
It’s up there. I don’t think it’s the highest, but it’s definitely in the up here. Sure, Louisiana, those parishes are absolutely crazy. Some of the rates that they hit there,
Dave Kelly 30:19
what I wanted to ask is outside of California, are there other states that are like really cracking down any other states that our viewers might want to be extra aware of
Michael Fleming 30:28
when it comes to sales tax, let’s talk sales tax. First, there are two really aggressive states and I expect more states to follow. It’s Illinois, and Wisconsin. And what they’re doing is they’re auditing everybody, once you get registered, a lot of people say I’ll just get registered on a going forward basis. We have a lot of clients who do that. But these two states will let you do that. And then a year down the road, two years down the road, they’re going to come back and say, Okay, we want to make sure that you use the correct date. And we want to all of this status, so they’re going to audit you. As to when you actually started, we had one client who got registered in January of 2019. And Illinois, went back to October of 2018. They wanted that summary month’s worth of tax. We’re seeing everybody who’s registered in those two states. Go back. So you want to be proactive in those states. You want to ask for VDA, we will not do prospective registrations anymore for our clients, because we’re just setting them up for a problem. It’s not IP, the state’s coming. It’s when the state is coming in those two states. So they’re really checking those threshold dates, when did you actually cross that threshold?
Rolando Rosas 31:58
So what you’re saying is, I’m just making this up so that I know the number in Illinois, Illinois says you must register if you’re over 100,000. And if you’ve been like on the sly, like I’m in selling more business, and then you go register, they’re gonna go see that you actually cross the threshold.
Michael Fleming 32:15
Correct. And Illinois happens to be one of the states that has a 200 transaction threshold, so it’s even worse. So you may cross at 200 transactions prior to the $100,000. So there’s really three different ways to get registered. One is prospectively, you’re just going forward. And we will not let our clients do that anymore in those two states. The second is historically, that’s when maybe it was six months ago. And he in the amount of money is not that big. Sometimes it’s actually cheaper to do historical registration. You tell the state exactly when your Nexus began. And then you file back returns and ask for a penalty waiver. You may or may not get that penalty waiver. But it’s a lot cheaper to do it that way. But you’re going to hire someone like us to do VDA, there’s a cost involved, and returns are cheaper than VDA. So
Rolando Rosas 33:15
with immediate immediate explain what it’d be a is
Michael Fleming 33:19
bdaas Vault voluntary disclosure agreement. And as a reward for stepping forward voluntarily, the state is going to limit the look back period, usually to three or four years. And they’re going to wait penalty. But in some instances, there’s only about seven states, but in seven states, they’ll waive some or all the interest like Texas wages 100% of the interest. Oklahoma was 50% of the interest. But in Illinois, we’re coming up on five years, October of 2018. And they’re VDA. They’ll only go back four years. So right away by doing a voluntary disclosure agreement, which is called the VDA, your anything older than that 40 years period. You don’t have to pay any of the back tax penalty for the interest. And in that four year period, you don’t pay any of the penalties. So it’s a great tool. But it’s not just like any tool. It’s not a one size fits all. And here’s what’s important. There are some software companies out there that say you owe more than $500 You need to do a VDA yeah, by the way, our fee to do a VDA, this is the software company is $3,500 My question is why in the world would you pay anyone $3,500 to remit $500 in tax for so you gotta be careful of EDA is a great tool, but it’s not a one size fits all tool. We’ve had people come to us that oh, maybe 20 $30,000 In tax, and they’re saying, hey, this company wants $100,000 Plus, to do PDAs in all these states, I don’t know how some of these salespeople get up in the morning, look at sales here shysters you. Yeah, you got to make sure it actually makes sense. And the basic rule of thumb there is, am I going to save enough money by doing this VDA to cover the cost of the VDA? So that’s the rule of thumb that I tell everybody. In other
Rolando Rosas 35:28
words, you have to do the math, you have to talk to an expert, like yourself or otherwise, that actually knows the cost the benefits, and then you can come back to your client say, here’s what it’s going to cost you to be compliant versus what you can go up with a flyer and see if the risk is worth it.
Michael Fleming 35:49
Right. And in a lot of states, that’s what our clients do they take a flyer, we let them know, which states that they can take a flyer and which states they definitely don’t want to take a flyer on May
Rolando Rosas 36:01
what here so I was gonna ask you, that’s you’re saying that what are your thoughts, especially now, when times are tough? Tom come up taking a flyer versus not? Aren’t states more aggressive as well, when the money’s gets tighter? The tax revenue shrinks up? What happens then?
Michael Fleming 36:20
Absolutely, that’s a great point, we never know which state is going to become aggressive. Next, for example, it took three years for Illinois to start auditing everybody. So you may be okay for three years, and then they’re going to come back. So any state you’re taking a flyer on, there’s always a risk that the state will come back in right now. It’s like the perfect storm. States know that roughly 50 to 60% of companies not compliant for economic Nexus, and they were raring to start. Yeah, it’s that hot, for a lot of reasons. But the states are gearing up to start tracking those people down. So they’re already gearing up. Now we get talking about the recession and things slowing down, we’ve already started seeing tax revenues start to shrink. And historically, whenever there’s been a recession, states need money, especially during a recession, they’ve got to put out more services for their constituents. They increase their auditing, and they increase the discovery efforts. Discovery effort means they’re looking for people who are not paying taxes that they think should be. So you’ve got the state’s already gearing up now we’ve got this recession think that’s the perfect storm. And we’re gonna start to see a lot more people get contacted a lot more States joining the list of Wisconsin and Illinois, it’s going to be tough out there.
Dave Kelly 37:53
It’s a real double whammy for business owners. So if the sales are down, and then the states are looking for more of tax. Man, they’re bleeding out of two ends at that point.
Michael Fleming 38:05
Yeah, absolutely. And here’s the thing. That’s why I say it doesn’t pay to procrastinate, because look at this economic Nexus, no one had any exposure prior to 2018. That’s when the wayfarer case happened June of 2018. And people procrastinated for whatever reason. And now that they’ve got going on five years worth of exposure, the quicker you take care of this, the less likely a state is going to find you and say, Okay, you owe all of this money in a lump sum, or we’ll give you a payment. Whereas if you’re collecting it every month, and remitting it every month, yeah, there’s a cost of compliance. But that cost of compliance is going to be pennies compared to the dollars that you could call it the greatest tragedy, you’re collecting sales tax from someone else, and remitting it to the state. Only now, because you didn’t do that. It’s coming out of your pocket, you’re paying someone else’s liability, with the added insult the penalty and interest on you don’t want to procrastinate. A lot of companies said I don’t have the money for the compliance. It’s counterintuitive. It’s those companies that really need this more than anything else. Because if you can’t pay the state, when they do find you in a lump sum, you could be out of business. Where is if you’re paying them all along, and there may be issues but those issues are going to be minor compared to not pay it just kicking the can down
Rolando Rosas 39:38
the road. So it’s really sometimes the choice of bad and worse, right? Yeah, it’s not that there’s a great option like good and better. It’s just bad and worse. What’s worse versus bad. I’ll take bad versus way worse. Let me probe your brain about when it comes to the Nexus issues in the income tax issues. In the Amazon world and a lot of other sellers now outside of the Amazon world, there’s a lot of grumbling about companies that are based outside the US, in particular Chinese sellers, whose there tend to be the most egregious when it comes to extremely low prices, playing hardball dirty tactics as well. There are other countries, but they’re at the top of the list for all three of those. Are these regulations that are in place? Let’s just call them regulations? Are these regulations in place for all sellers, selling products in the US in the States? Are you seeing that the sellers outside the US are not there in that 50 to 60%? Or they’re just ignoring it altogether? What’s your thoughts on that? Because I know there’s a lot of sellers that probably want to know what’s going on there.
Michael Fleming 40:46
We’re seeing more and more compliance, some of it voluntarily, some of it not from the International sellers, they follow the same rules as when it comes to sales tax his sellers here domestically, State of Washington, you know, there was a big Chinese seller, they were actually in mainland China or not Hong Kong or anything like that. When they contacted one of their representatives in Canada, and we got involved at this point, and they said, hey, please tell them that good luck. We’re in China, let them see them get their money. Why the state of wash would Yeah. Well, you know, here in the US a lot about exactly. The states have a lot of power. We talked about how they can go over to the bank accounts, how can you get a bank account when it’s in mainland China, that’s, that’s kind of tough. But here’s what the state of Washington said, they said, Okay, if they want to take this position, here’s what’s going to happen, we’ll give you 30 days to comply, if you don’t reply, we’re going to do an estimated assessment, by the way, estimated just means we’re going to make up a really huge number, because we’re going to make a number out of it to be huge, then we’re going to give you 30 days, and if you don’t pay it in 30 days, returning it over to our collections department, and here’s what the collections department is going to do. Number one, they’re going to go after any inventory that you have at Amazon,
Rolando Rosas 42:14
in the state of Washington or outside the state of Washington in this example,
Michael Fleming 42:17
they’re going to start inside the state of Washington, but they have reciprocal agreements with other states where they could go after some of the other food toys a little bit tougher. Number two, accounts receivable states go way after accounts receivable, California will go after your vendors. If they make you pay the state rather than paying you it’s been done before. So yeah, so that’s the second thing that they’re going to do. And the third thing, they said, We’re gonna pressure Amazon, to no longer do business with you. And it was that third thing that got their attention, they owed well over a half million dollars in taxes, they ended up paying, they settled up with the state of Washington. So
Rolando Rosas 43:00
hardball, those guys, thank you if they can force those Chinese sellers to you know, give up the money.
Michael Fleming 43:05
Yeah. Now, sometimes these Chinese companies are going to shut down and open up another one, another company, and then you got to worry about building the Amazon reputation and everything else. We’re seeing more voluntary compliance as education, more and more sellers in foreign countries are starting to become compliant. And one of the reasons is they see some of these countries out there like the UK going backwards, and going after these sellers, the trend is in the favor of them registering voluntarily. But for those who don’t. What are my predictions is once we get this handle, and it’s hard to get Congress to do anything, and maybe this administration won’t do anything with China. But on a going forward basis. I think one thing that Congress could agree on, is protecting the US sellers from the foreign sellers. And I think that passing something along the lines that makes it easier to pursue some of these foreign sellers or prevent them from coming in to the country in the first place if they don’t become compliant upfront. So I don’t know exactly what that’s gonna look like. But I think there will be enough pressure, you’ve got so many different sides fighting about the domestic stuff, and we’ve got to consolidate all of this right now. But I think the states and sellers will agree, we got to do something against the foreign sellers, and you put enough pressure on Congress. I think that this is something that we could see some movement on, because who’s going to not want to protect us sellers from unfair foreign competition.
Rolando Rosas 44:51
If you were to sit there at the table and you got the senators and members of the House, they all want to stand up in front of the cameras right? But if you were to advise them and say, Hey, Mike, are there two or three specifics within that? Is this a mechanism that would then be passed on to Amazon as you register? Would this just be a law that then applies to all sellers from date X moving forward? You know, because the thing is, then we pass the law, but who at the end of the day is going to execute? And then enforce what would you advise? Are 20 minutes away? If I had to go there, and you came with me, and we sat down at one of those hallways and in conference rooms with senators and congressmen, what would you say? It’s tough?
Michael Fleming 45:37
It’s tough for me to believe that government has the answer for just about anything, because whenever we get them involved, there’s always unintended consequence.
Rolando Rosas 45:47
No doubt, no doubt,
Michael Fleming 45:48
I would like to to be as minimally involved as possible. I would like them to just make it easier for the States to pursue these international sellers. Maybe do something with the Customs and Border or when the goods are being shipped into the US. They could put it back on Amazon. But it seems Amazon is collecting and remitting the tax for them on the sales tax side income tax. It’s another story because you’ve got the tax treaties. And the tax treaty says that if you don’t have anything here other than inventory in a warehouse, this is the federal tax treaty. What it basically says is that you pay the taxes in your home country. Most countries have tax treaties with the US now states are sovereign. So not all states will comply by the tax treaties. There’s 13 states that say I don’t care what the tax treaty says, Here’s what I want.
Rolando Rosas 46:50
Damn you, Uncle Sam giving you a middle finger. That’s what
Michael Fleming 46:56
exactly. We want our money and you can’t keep us from it. So they’ll make these foreign companies do a pro forma. US tax return a make believe US tax return. It’s not filed with the federal with the IRS, but the states use it in order to populate their state tax returns. So it’s a lot of extra work for these foreign companies. But New York and Pennsylvania and Florida border says they follow the tax treaty, but we’ve been getting a lot of issues in Florida, California, they don’t follow the tax treaties.
Rolando Rosas 47:34
Yeah. If you’re selling from another country in the US, your chances of selling goods into California, New York, and Florida are very high. The percentages are just not going to work out the numbers, you’re not going to pull a lot of sales out of Wyoming or South Dakota or North Dakota, like you would in California, Texas or New York,
Michael Fleming 47:53
correct. Roughly, someone sails into California, right around that 15% area, they may be 12, they may be 17. But California goes along the population. So your sales generally, percentage of sales into one of those states usually matches the percentage of population within that state. So Texas is going to be six 7% or so. Each state you look at it’s going to be close. And in a state like Wyoming it’s less than half percent of the country’s population. So not going to be a big issue for you. But California that’s going to be a huge issue. And not just for born sellers for us sellers. Also.
Rolando Rosas 48:33
No doubt, no doubt. Mike, I would love to jump into one other thing with you here. We have the rapid fire segment. All right. And just what comes out your mind yeah, there’s this one there’s absolutely no right or wrong answer. It’s just what’s in the rain. What do you think you feel about it? What’s the word that comes to you? So first word that comes to mind. Here we go. f be
Michael Fleming 49:04
a no longer have to worry about sales tax if you’re only selling through it VA awesome.
Rolando Rosas 49:12
Amazon advertising
Michael Fleming 49:15
advertising generally doesn’t create nexus so I don’t have strong feelings either way on that one there.
Rolando Rosas 49:21
Okay, Chinese seller
Michael Fleming 49:26
knockoffs face those are a lot of key issues but hard to get them to be compliant when it comes to sales Sandor income tax here in the US.
Rolando Rosas 49:36
All right, Amazon, Seller Support, oxy moron different word.
Michael Fleming 49:47
We talked to him about sales tax issues. They don’t even know how to sell sales tax when I was working with them. You would call and ask for some help and you would get answers like you would not believe they would speak with authority and this is to get it. It had nothing to do with a question. Yes. So nothing. It from what I hear. It’s not far off when you’re talking about topics other than sales tax ID. There’s a love hate relationship in my mind, between Amazon and their sellers.
Rolando Rosas 50:23
100% agree with you and concur. So number five, selling into Canada
Michael Fleming 50:30
look at it. I think that Canada is wide open market. And you get to pick and choose whether you want Amazon to handle your taxes, or there’s actually a financial incentive to do it on your own.
Rolando Rosas 50:47
Interesting, very interesting. Oh, my that’s a that right there. If you’re selling any significant amount of dollars or 80 in dollars into Canada, I could pay for itself just by listening to the podcast today. Dave,
Dave Kelly 51:01
I pass the baton to you. All right, Mike. rapidfire. The first word that comes to mind. drone deliveries,
Michael Fleming 51:10
futuristic?
Dave Kelly 51:12
We haven’t seen them. Wait. Yeah, we’re looking forward to the drones. All right. I have another one for you. Walmart versus Amazon potential.
Michael Fleming 51:22
I think Walmart has a lot of potential. I don’t think they’ve really capitalized on it yet. I think there’s a great opportunity there. Right now, I think you gotta be on Amazon.
Dave Kelly 51:35
Alright, I got three more Elon Musk
Michael Fleming 51:39
character, that I scratched my head and I say I wish I had enough money to buy something just so that I can control people speech, or allow them freedom of speech, however you look at it, but he’s already devalued the company there. So I don’t think it was a very good investment. But sometimes people have other reasons for spending their money.
Dave Kelly 52:05
All right, the future of Alexa.
Michael Fleming 52:08
I think Edie is going to replace her.
Dave Kelly 52:13
Are they both listening all the time? I have too many devices in my house. And like Don’t say that. Santa is listening. Who said I’m like, I mean, Alexa, but she’s listening. Alright. And last but not least, what comes to mind? Jeff Bezos bazillionaire.
Michael Fleming 52:32
From a tax guy gazillion. Yeah. Pretty smart guy. He took a little bookseller out there and bought it online and didn’t make profits for a number of years just kept selling the dream, and then out to behemoth. More power to
Dave Kelly 52:51
Awesome. Well, thank you for participating in our rapid fire segment. Yes.
Rolando Rosas 52:56
So we’ve been talking to Mike Fleming today. Mike, if people say help, what do I need to do? All of this stuff going on with the states? Where should they try to reach out to you?
Michael Fleming 53:11
The best way is through the website. There’s some contact forms on there. Its website is sales tax, and more told spelled out.com. Or the email address, the best one is info at sales tax and more.com. I’d love to give you my email address. But I get so many emails, you probably this will work better response.
Rolando Rosas 53:36
This is how you want folks to funnel their communications with you. Absolutely. That’s what we’re gonna put right here on the screen. And you can reach out to Mike and his team. And they will try to do their darn best to I will say for just for me put my two cents in. We do use Mike and his team. And boy, they have been tremendous. I mean that because the customer service, as well as the advice that comes from yourself and your team has been tremendous and in value. So big, big props to Mike Fleming and the team at Sales Tax and More. Mike, was there anything else you wanted to leave us with before we wrapped up now
Michael Fleming 54:15
my prediction for the future is that the income tax is going to become a much much bigger issue over the next two years. So I think that’s something we got to begin to prepare our minds for. And sales tax if we’re not compliant already. You want to beat the state to reaching out to you there are ways to mitigate your past exposure. If you proactive once the state reaches out, there’s there’s not really any dealing with them. Very few options.
Rolando Rosas 54:48
Yeah, that’s what that sounds like. Mike. This has been tremendous. If you have enjoyed today’s podcast, and you’re watching us on YouTube, you want to hear more advice like What Mike is talking about, we’re going to have a few videos up here so that you don’t run into trouble with either the Feds states as well as other pressing issues. So we’re gonna put those up on the screen here so that if you’re watching us on YouTube, go ahead, Dave, and I will join you in those videos, so that you can grow your business faster, and save yourself costly mistakes. And for those that are listening to us on the podcast, wherever you consume your podcasts, we have other episodes of guests just like Mike, because I want to be like Mike in some ways, I want to find out more. And I want to know where we can save ourselves from making costly mistakes. So check us out on circuitloops.com or your favorite podcast platform. Thanks for joining us today, and I will see you in those episodes.
Outro 55:51
Thanks for listening to What The Teck? Be sure to check out our other episodes featuring awesome tech and amazing guests. Find them on circuitloops.com or wherever you consume your favorite podcasts.
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