Vendors, Taxes and Medical Practices

In a recent Federal court case, South Dakota v. Wayfair, Inc., the United States Supreme Court ruled 5 to 4 in favor of allowing states to collect sales tax irrespective of nexus. Previously, nexus (location of taxing entity for purposes of collecting a tax on the transaction) had been the key determination in most states as to whether or not sales tax needed to be collected and remitted on a periodic basis by vendors doing business in the state. Physical presence typically meant brick and mortar facilities, incorporation in the state, or total sales over a certain threshold amount. All these factors determined nexus.

There have been several court cases that have allowed a vendor to push back against a state’s assertion of sales tax remittance obligation by the vendor by citing legal precedent that does not require companies without nexus to remit sales tax.

“What South Dakota v. Wayfair, Inc. accomplishes is an elimination of that defense.”

This is positive confirmation that nexus no longer need be the main determinant in factoring whether a vendor must collect and remit sales tax to a customer residing in a different state. The decision allows relief for smaller vendors doing business across state lines in certain instances. If total sales are under $100,000, or the vendor has 200 or fewer individual transactions in a certain state, they will not be subject to the new sales tax requirements that come out of this decision.

As always, each of the 50 states has its own set of statutes that govern the method and framework underlying how sales tax is calculated, determined, and assessed. Because this is a Federal upholding of South Dakota statute, this does not necessarily mean it will flow down to each state in whole or in part. Some increase by the state in its effort to collect sales tax is highly likely, especially in states where sales tax is high on the list of revenue sources for that state.

One of the most obvious states where this is true is our great state of Florida. Sales tax revenue is the top source of funds in the state as no individual income tax exists. Florida, among other like-minded states, will most probably use this Federal decision to its fullest extent to increase its primary food source.

“In 2017, sales tax revenues in Florida ran around 24 billion dollars. Estimates have the potential increase in sales tax revenues as a result of this decision increasing up to 50%, or an additional 12 billion dollars per year. “

An extremely high likelihood exists that by upholding South Dakota’s lack of requirement for nexus in the state, Florida’s effort to bring in more sales tax will increase substantially.

What does this mean for you? Simply, vendors exceeding the $100,000 and 200 customers or more threshold will have to collect additional sales tax for sales made from their state to residents of Florida. Those vendors that previously did not charge sales tax will now have to do so. This is good news from a use tax perspective but could easily create surprise price increases for you as the end user. Vendors not only have to figure out the peculiarities of every taxing jurisdiction that they do business with in the country, but the effort to set up systems to oversee this entire process and insure compliance will be extraordinarily burdensome. Costs will most probably be passed on to the end consumer in some way. The major risk is for those practices that don’t keep a steady eye on fluctuating vendor prices and adjust their mark-up in lock step.

These transactional taxes will ultimately be passed onto the final consumer; be that doctor, patient, or other consumer. This burden of reporting and collecting will be most likely in the hands of the vendor.

If you vend product in your practice or through another business venture, be mindful of potential state or common-wealth statute charges in collection and reporting. That which was will always mutate.