Deregistrations
Michael J. Fleming is the founder and president of Sales Tax and More, a full-service consulting and solutions firm with a passion for state tax. He is one of the country's leading authorities on sales tax issues such as consulting and research, registrations, returns, nexus, drop-shipping, eCommerce, and service providers.
Michael is a renowned writer and speaker, and he regularly presents on webinars. He is also the host of the Sales Tax and More Podcast, where he shares his wisdom and learnings with his audience in order to help them navigate the tricky world of taxes.
In this episode…
Mike Fleming and Ellie Moffat discuss and answer questions about the deregistration process.
Here’s a glimpse of what you’ll learn:
The dangers of working with a software company to perform services.
What is a deregistration? Why would someone want to deregister if they’re not switching an entity?
Is deregistration an easy process?
Are there circumstances where you would not want to deregister?
3 Things STM does when doing a deregistration process.
Connect with Michael
Episode Transcript - Audio Version
[00:00:00] Welcome to Sales Tax and More, your go to resource for all things state tax related. Now, here is your host, Michael Fleming.
Michael Fleming: Hi, Mike Fleming here, founder of Sales Tax and More, and today's co host of the Sales Tax and More Podcast, where we talk about everyone's favorite topic, which is of course, sales tax. And today we're going to talk about deregistration, sales tax deregistrations. But first, let me introduce you to my co host, Ellie Moffat.
Ellie Moffat: Hey, everyone. Great to be here. As always, please like and subscribe. If you get any value out of this podcast, if you just enjoy listening [00:01:00] to our beautiful voices, it helps us a lot. And we love to have you here. So quick introduction for Sales Tax and More. We are a full time service consulting and solutions firm.
We have a great team here of experienced tax professionals who are very dedicated to fulfilling any of your state tax or related needs. So we do a lot of sales tax returns, sales tax registrations, consultations, research and like our name states more. So if you have questions about our services or you'd like to work with us, please reach out.
We would love to hear from you and we'd love to work with you as well. And Mike, speaking of registrations here where do we want to start?
Michael Fleming: Well, we're talking about deregistrations, Ellie, not registrations. But I don't think any podcast would be complete for us without me warning of the dangers of working with software companies to perform services.
We love software companies when they stay in their [00:02:00] lane and they stick to doing software things. But there are just so many problems that we have to clean up for their customers when they step out into the area of services. In this one, someone came to us. We helped the client close their old registrations, so we were doing deregistrations, that's what a deregistration is, when we close their old registration, or close their registration.
In this case, they were closing the old ones and reopening new ones because they changed entity types, they went from a corporation to an LLC. And they use a software company to file their returns. Now, every state has a process when you're doing deregistrations, you can't just stop filing and the process is different from state to state.
Now, one thing that some states require is the return to be marked final [00:03:00] return. There's a checkbox on that return and you got to check it and mark it as a final return and states get pretty sticky about this. Since we're not doing their returns, we told this client you have to tell your provider, the one who's filing your sales tax returns, that they need to check this box.
So he went and he talked to them and this company is, we're not going to mention by name because they're nowhere near as bad as an Avalara when they're trying to perform services, so we don't want to embarrass them too much, but you got to be aware of things like this out there. They told their customer, our client now, that "Sorry our software doesn't allow us to do this." And the customer, their customer was like "What do you mean your software? You're a tax software company. You're filing my returns. What do you mean you can't do this? Why does your software not allow it?". They said, "Cause it just doesn't."
Now, if I was in their position, I'd say, "Okay, hey, we'll have to do this one manually and get it filed." [00:04:00] But again, the customer service at many software companies is not what it should be. So now he's in a pickle and now he's got to come to us and it's expensive for us to do a one off filing. You know, if we're filing your returns, we're very competitive out there, but to do just one return a lot involved in that and it's more of a headache very expensive for us to do it.
So I, I don't know what's going to happen. It'd probably be just as cheap for him to transfer all of his returns to us and have us doing them going forward, probably save himself a lot of headaches. What type of software company has software that doesn't allow them to do something that needs to be done on a fairly regular basis.
It just baffles me. But anyway, I digress. We did enough bashing for today, Ellie. I'll stop. Ellie gets nervous when I start bashing software companies.
Ellie Moffat: Mike, can you what? Why don't we switch gears here? We'll talk a little bit more about deregistering because, not everyone is switching entity types.
[00:05:00] So why would someone want to deregister if they're not switching an entity?
Michael Fleming: All right good segue. Good to get me off my software bashing here. There's a number of reasons. Let's use a recent one. Alaska had an economic nexus and the economic nexus said that if you're over a hundred thousand dollars or 200 transactions, you need to be registered in collecting and remitting the local taxes here in Alaska.
The Alaskan Municipal League administers this. As of January 1st, they just eliminated the 200 transaction threshold and they said, "Hey, if you only registered because of the 200 transactions, you can now deregister." So we have quite a number of clients who are deregistering at this point. So whenever you no longer have nexus, that's a good reason to deregister.
Why bother collecting the tax, open yourself up to a potential audit and [00:06:00] pay someone or take the time to do the returns yourself if you don't have to. When your nexus footprint is shrinking, when you no longer have nexus, and a lot of states are moving away from those transaction thresholds, not all states, but a lot of states are either moving or have moved or plan to move, so that's a great reason for deregistering.
Another one, maybe you had an employee in a state and that employee moved or quit, or you fired them. They're no longer in that state, so you no longer have a physical presence. You're underneath the economic nexus threshold. Maybe you deregister for that one, but again it comes back to, you no longer have nexus in that state, which means you no longer have a responsibility to collect and remit the taxes.
So that's just a couple of reasons why you would want to switch why do you want to deregister?
Ellie Moffat: So is it an easy process? Is deregistration an easy process?
Michael Fleming: Could be. Should [00:07:00] be. Only every state has a little bit of a different process and here's what makes it such an issue. States are notorious for not following their own process.
What we do is three things usually when we're doing a deregistration process. Number one, we tell the state what we're going to do. Then number two, we do whatever the state wants. In some states, it's checking the return and sending a letter. Some states it's filling out a form. So we do whatever the state wants us to do.
And then three, and this is the most important step. We follow up with that state to make sure they actually did what we've asked them to do and what we did as part of their process. And a lot of times it's not done. So we call, 20, 30, 45 days later to make sure it's done. And if it's not done, we say, "Hey, here's all our paperwork. We did everything you told us to do. You got to close this account." And if you're not doing that, or if you [00:08:00] just stop filing, some people think they can just stop filing and not actually close out the account. All of a sudden, two, three, four months later, you're getting bills from the state saying, "Hey, we didn't get your returns. So now we're estimating what you owe us." And those can be pretty scary. So you want to make sure that the state actually does what they're supposed to be doing. So you got to follow up. Wish it wasn't like that, be a lot easier process. But if you don't do that very important step there, whether you're doing it or whether we're doing it for you that's an important piece because you got to make sure that these states actually follow through.
Ellie Moffat: So are there circumstances where you would not want to deregister?
Michael Fleming: Absolutely. Your home state, for example, generally it's a great practice to stay registered in your home state. There are other reasons why you may want to be registered there. If it's one of the 10 [00:09:00] tough states that will only accept a exemption or resale certificate if you're actually registered in their state, so that's a good reason to stay registered.
If you're having items shipped to that state and you need an exemption or certificate for that. So there are times when you may want to stay registered. Sometimes, you may have a customer who says, "I only deal with vendors who charge me sales tax." John Deere did this a number of years back.
And some of their vendors reached out to us and said, "Hey, they're you know, we don't do very much business with them. Should we start charging them sales tax?" And unfortunately, they thought it would harm some of their other customers. So they didn't get registered and they stopped doing business with John Deere.
Other people, it was a big part of their business. So they continued collecting or they got registered and continued to collect and remit the tax. And by the way, [00:10:00] can't pick and choose in that situation. We had some clients say to us, "Mike, we're going to get registered, but only going to collect tax from John Deere."
It doesn't work that way. Once you're registered in just about all the states there may be one state with some sort of partial exemption there, but in general once you're registered, you got to collect tax on all of your taxable transactions. So again, maybe your customer's the one who's making you or wants you in order to continue doing business with them to do that.
Maybe there's a state law if you're dealing with school systems or something that you got to be registered for sales tax. So sometimes, it's customer driven. But your home state, customer driven, or in states that are tough about only accepting resale certificates where you have a valid number.
Those are the three big ones that I can see why you would not want to deregistered. But absent those if you don't have nexus, if you don't have [00:11:00] this responsibility to collect the tax, why bother doing it?
Ellie Moffat: All right. Thanks so much, Mike. Anything else?
Michael Fleming: I just like to summarize here again. Deregistering could be an important part of your sales tax strategy. Why stay registered and all the risks entitled with that and costs of filing returns when you can deregister. You can't just stop filing each state has their own deregistration process.
You want to be following up with the states to make sure they're doing what you told them to do. And sometimes you'll want to stay registered either because it's your home state or it's a tough state for exemption certificates or your customers want it or need it. And then I I just want to circle back and knock on the software companies again. That's one of my favorite things you know that.
Make sure you know who you're dealing with. And just because someone can figure out the taxes and make your life [00:12:00] easier with providing rates and putting everything on an invoice doesn't mean that they're the best person to perform services. We see so many problems when software companies who whether it's customer service issues or whether it's their inflexibility or whether it's their inability to do something create problems for their customers. And it's great for us because now they become our clients because the software companies can't help them out.
So when it comes to services software companies are generally not your best bet out there. Thank you for allowing me to to talk about the software companies again, Ellie. I had to get it back in there. Other than that.
Ellie Moffat: You don't know maybe I'll edit it out. No, I'm kidding.
Michael Fleming: So other than that, I appreciate you taking the time to join us today. And we hope to see you on the next installment of the Sales Tax and More Podcast.
Ellie Moffat: Yes, and if you have sales tax needs, again, we offer many solutions and services. You can [00:13:00] reach out to me directly if you have questions, my email is E Moffat, E M O F F A T at sales tax and more. com. You can also visit our website, sales tax and more. com. And we hope to, we hope that you join us for our next episode of the podcast.
Michael Fleming: Bye bye everyone.