We Wish Everyone a Happy and Healthy Holiday Season
Wow, where has 2021 gone. The year, for the most part, seems to have flashed by. And as I reflect on this past year I realize that many of the same issues we faced in 2020 are still the same as we end 2021.
I thought we might be done talking about COVID-19 by now, but apparently not, and it looks like we will be talking about it well into 2022 and maybe beyond. Unlike last year when none of our employees tested positive, some have tested positive this year. Fortunately, they had been vaccinated and the symptoms were very mild. Thank goodness! We are still working 100% remotely and will continue to do so going forward. So while we are not concerned with having to wear masks at the office or spreading the illness amongst ourselves, we wonder how this will impact our traveling and speaking events. We began attending and speaking at conferences the second part of this year and had a number of trips planned for next year but we are beginning to wonder if we will see more cancellations as a number of states are masking up again and fears about Omicron begin to spread. We hope this variant is milder than those in the past and wish for all our employees, their families, our clients, our partners, and everyone else to stay healthy as we move forward.
We also pray for those impacted by the tornados. While these types of tragedies are always horrific, I think the emotional toll is even greater when they happen. Some of our employees were in the path of these storms and we are thankful they, their families, and their dwellings all made it through safely. They are giving of their time, their homes, and their money to help those in their communities who were less fortunate. They are also our ambassadors in these communities, letting us know where and how we can best assist in helping.
Despite many of the changes in 2021, our business has expanded greatly. While finding good people to support our expansion has been tougher than ever, we added eight terrific folks this year and are now at 26 employees. Our revenue grew by over 80% year over year. This growth continued to be fueled by our excellent Sales Tax Returns Services (STRS), as well as our new Exemption Certificate Management Services. The clients migrating to us realize that a successful sales tax program requires a more personalized experience than a software company can provide. We are grateful for this continued expansion and expect 2022 to be even better.
We want to say thank you to our clients without whom we can not be successful. For those of you who have struggled this year, we hope that 2022 is a much better year. For those who have done extremely well, we wish for your continued success as we enter 2022. To those clients who have sold their companies in full or in part during 2021, we congratulate you. For those in the middle of a transaction, we hope you close successfully.
As we enter 2022, we see a couple of trends that bear watching. One of the biggest is in the mergers and acquisitions arena. It seems that everyone wants to acquire eCommerce companies. We are being asked to participate in more due diligence projects, sometimes by the purchaser and sometimes by the seller. In most cases, the sellers are surprised at the level of scrutiny regarding past sales tax exposure. Those who have been compliant don’t have much to worry about. But, those who have not taken care of their taxes as they should have been are mortified as a result. Sometimes, a deal will be canceled, or the purchase price cut or an escrow account set up and funded from proceeds of the sale for future tax issues. Sometimes, a seller is required to clear up any sales tax issues prior to the close. This is because the potential liabilities follow the assets regardless of whether it’s an asset purchase or stock sale. The acquiring company does not want to be responsible for the seller’s sales tax liability.
Another trend that we saw in 2021 that we expect to continue into 2022 and beyond is states becoming much more aggressive about income and similar taxes. We believe this will be the next big battle for eCommerce sellers. California and Pennsylvania are aggressively pursuing FBA sellers and we expect more states to follow. Most states take the position that inventory in an Amazon warehouse pierces the protections of PL 86-272 and allows a state to impose a net income tax. However, PL 86-272 appears to be on life support and fading fast. The MTC changed its guidance on unprotected activities and virtually eviscerated the protections for most eCommerce companies. Roughly 22 states have said they plan on implementing this new guidance in whole or in part. I see this happening over the next 6-24 months, and if things stay as they are, it’s going to get ugly. By the way, Hawaii has gone off the deep end and has said crossing the $100,000 or 200 transaction thresholds also creates income tax nexus and PL 86-272. They are not even trying to use the cover of the MTC. We believe they are wrong but have not had any clients willing to sue in order to fight them. As I said, ugly.
Another trend to look out for is increased discovery and auditing efforts surrounding economic nexus. The states of Illinois, Maine, South Dakota, and Wisconsin have been the most aggressive up until this point. It is difficult to predict which state will be next, but we are concerned about Florida, Kentucky, and Utah based on correspondence our clients are receiving. There have been two surveys done that I am aware of concerning compliance with the economic nexus standards. One says 50% of all companies are non-compliant and the other says 60%. The states know this, and that is why they are stepping up their efforts to find companies.
On a more positive note, I was interviewed by the Government Accountability Office (GAO) and we have seen them at our webinars. They were empowered by Congress to gauge the impact of economic nexus. So, while I am generally disdainful of Congress ever fixing anything, I have a small glimmer of hope.
I would like to remind everyone that January is an important month to relook at your sales for 2021, as many economic nexus thresholds reset and require review for the previous calendar year.
In closing, I thank all of our employees. I am humbled by their dedication, professionalism, continuous effort, and service. Thank you again to all of our clients who have trusted us with their state tax needs, making this another banner year. I can’t wait to see what we will all achieve in 2022.
Merry Christmas and Happy Holidays!
Mike Fleming
President
Sales Tax and More