Category: Accounting

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Online Retailers to Collect State Taxes, per Supreme Court: Accounting Expert Insights

Today the Supreme Court of the United States (SCOTUS) ruled states can force online retailers to collect taxes on the items they sell.

The ruling gives states the power to force eCommerce and Internet retailers to collect sales tax from online purchases, even if the company doesn’t have a physical presence (i.e. no brick and mortar location) in the state. This article from CNN provides a summary of the decision. This post from Bloomberg provides greater detail.

The case originated out of South Dakota and was brought by eCommerce-giant Wayfair.com. Wayfair was arguing against a South Dakota law requiring Internet companies with more than $100,000 in in-state sales, to collect sales and use taxes on goods sold through their website. Naturally, Wayfair was arguing this shouldn’t apply to them as they did not have a physical presence in South Dakota.

This will be a massive blow to online retailers such as Wayfair, Amazon, Overstock, and others. On the plus side, it seems this will level the playing field for all retailers and may even encourage consumers to shop locally.

After a suggestion from friend Mitch Jackson of Jackson & Wilson, I got to wondering, what impact will this ruling have on small and medium businesses? What advice might these small and medium online retailers need to proceed after this ruling? Mitch also covered this same topic in a live video today. His show is called LegalHour.live.

As I normally do in these situations, I turn to our extensive database of expert witnesses to answer these pressing questions. In this instance, we need input from accounting experts.

Accounting Expert Answers:


Michael J. Garibaldi, CPA, ABV, CFF, CGMA, is a Certified Public Accountant licensed in New York. Mr. Garibaldi works closely with law firms and other professional service firms, manufacturing, wholesale/retail, medical, technology, restaurant/hospitality, artists and galleries, construction, and real estate clients where he is responsible for providing accounting, tax planning management consulting services, and financial reporting. You can learn more about Mr. Garibaldi’s services by visiting his website at: garibaldicpas.com.

Posing the same two questions to Mr. Garibaldi, he stated, “The issue and recent ruling is hotly contested and has far reaching implications.” Then he provided the following answers.

Nick: What impact will this have on small and medium sized online retailers?

Mr. Garibaldi: Small and medium online retailers will now have to collect and remit sales tax to the various taxing jurisdictions that they sell in. This will create a significant administrative burden to properly collect the appropriate sales tax for each jurisdiction, file the appropriate sales tax returns and then remit the funds to each taxing authority. Since there is no central taxing authority, the retailers will need to determine the specific law, rules and regulations within each jurisdiction and then timely file and remit the appropriate sales tax collected. This includes not only the states in which the retailers will be responsible to collect and remit the sales tax, but each local  jurisdiction within each state. For example, New York State has over 70 local taxing jurisdictions each with their own tax rate. This will create the need to enhance the technology utilized in processing orders, increase administrative oversight, as well as tax and accounting department personnel to file the returns, etc.

Nick: What advice would you have for small and medium sized online retailers facing the prospect of looming state laws to collect taxes?

Mr. Garibaldi: Online retailers should not wait.  They must begin to develop the systems necessary to properly collect sales tax within each jurisdiction. They should determine the systems and technology needed, design the proper procedures and be ready to implement them as soon as possible. As the old saying goes, an ounce of prevention is worth a pound of cure. Trying to collect and remit the sales tax on the fly will lead to unnecessary work to unravel what was collected and to whom it needs to be paid, not to mention the liability that comes with collecting sales tax. Business owners should take heed that this is a fiduciary responsibility so the owner(s) of the business can be held personally responsible.


Steven G. Roberts, CPA, CFF, CFE, CCI, CGMA, FCPA, is a forensic accountant and economics expert witness focusing valuation, economic analysis, economic loss measurement, forensic accounting, and fraud examination. You can learn more about his service here: veritasteam.com. He was unable to opine, but we received some initial thoughts from Dr. Wade Roberts, a senior forensic economist with Veritas:

Nick: What impact will this have on small and medium sized online retailers?

Dr. Roberts: The ruling was limited to the large online retailers. Additionally, states will have to adopt laws that specify and delineate the tax implications over the coming months/years. For businesses impacted, they will potentially compete for online business against states with more favorable tax treatment.

Nick: What advice would you have for small and medium sized online retailers facing the prospect of looming state laws to collect taxes?

Dr. Roberts: Small or medium size online businesses needing to comply with tax rules over thousands of tax jurisdictions will likely encounter added costs in the pursuit of adhering to the ruling. Businesses should determine the best tax software for their circumstance, attempting to both meet the needs of their operations, while at the same time minimizing the costs required for the added software. Many small and medium size businesses are already moving in this direction as is evidenced by the dramatic rise in Avalaro’s stock price.


Tiffany R. Couch, CPA, CFF, CFE, is Principal at Acuity Forensics, a Pacific Northwest forensic accounting firm. She has more than 20 years of experience in the field of accounting with the last 13 years focused completely on forensic accounting related engagements. Her expertise is in matters involving fraud investigation, forensic accounting, contract and regulatory compliance, internal control risk assessment, and complex litigation. You can learn more about her services at her website: acuityforensics.com.

Nick: What impact will this have on small and medium sized online retailers?

Ms. Couch: Likely cost to track the transactions and file the returns each month. There will also be a potential cost of buying software to handle this kind of tracking and reporting.

Nick: What advice would you have for small and medium sized online retailers facing the prospect of looming state laws to collect taxes?

Ms. Couch: Make sure you have a GREAT sales and local use tax CPA who can assist in ensuring you have an appropriate accounting and record-keeping system to ensure compliance. Also, don’t get behind on paying these taxes. I recommend setting aside the sales tax funds in a separate account so that the funds are available when it’s time to remit the tax.

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Paul Manafort Indicted: What expert witnesses can we expect to see from defense and prosecution?

Robert Mueller’s investigation into Russian interference in the US Presidential Election has resulted in the indictment of Paul Manafort and one of his business associates, Rick Gates. It has been reported that a third individual, George Papadopolous, has pleaded guilty for making false statements to the FBI.

None of this is particularly surprising. On Friday we learned the first indictments would be handed down as early as today, and that is exactly what happened. As of this writing, Paul Manafort has turned himself into the FBI’s Washington Field Office.

ABC News reported the list of charges against Mr. Manafort and Mr. Gates. The 12 counts include: “conspiracy against the United States, conspiracy to launder money, serving as an unregistered agent of a foreign principal, false and misleading Foreign Agents Registration Act statements, false statements, and seven counts of failure to file reports of foreign bank and financial accounts.”

We are not writing to take any political side and it should be noted that an indictment does not mean the defendants are guilty of the charges. In fact, they are innocent until proven guilty. Rather, we wanted to discuss the expertise which may come into play in this matter.

What types of expert witnesses can you expect to see?

Forensic Accountants:

Based on the counts enumerated above, it appears the FBI has followed the money. As such, we expect the forthcoming prosecution will hinge on financial transactions and accounting related issues. As stated above, Manafort and Gates were charged with seven counts of failure to file reports of foreign bank and financial accounts in addition to conspiracy to launder money. If money is flowing in and out of multiple bank accounts forensic accountants are going to be needed to analyze the transactions and explain those transactions to the trier of fact.

Money Laundering / Anti-Money Laundering Experts:

Are you surprised to hear this type of expertise exists? Money laundering experts may have a background in forensic accounting, financial fraud, banking, and banking compliance. Again, there was a charge of failure to file reports of foreign bank and financial accounts. Failure to report these accounts might be a compliance issue. The prosecution could argue such a failure was purposeful and intended to evade reporting. Whereas, the defense may contend failure to report was accidental or negligent. We expect to see both sides presenting expert evidence on financial transactions and reporting.

Computer/ Digital Forensics:

Nothing in the counts of the indictment specify a digital forensics expert will be necessary. We are assuming that many of the financial transactions were done electronically and therefore attributing the transactions to the defendants may require electronic discovery and other digital forensic investigation / analysis.

This list should not be viewed as exhaustive. Looking at the counts in the indictment, it appears the upcoming case will be heavily litigated on financial matters. Going forward, we will look for news items related to forensic accounting and inform our readers as we know more.

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FORENSIC ACCOUNTING EXPERT WITNESSES & CONSULTANTS

In the fall-out from the past few years’ financial debacle, there has been no shortage of work for Forensic Accountants.  From the Bernie Madoff scheme to Lehman Brothers and all the financial scams in between, Forensic Accountants have been called upon to apply the concept of accounting to help lawyers adjudicate and resolve the resulting legal problems.

Image Courtesy of Trade & Global Market

The Accountant’s Handbook of Fraud & Commercial Crime offers a definition which has been informally accepted by many Forensic Accounting Experts.  The definition is as follows:

“Forensic and investigative accounting is the application of financial skills and an investigative mentality to unresolved issues, conducted within the context of the rules of evidence. As a discipline, it encompasses financial expertise, fraud knowledge, and a strong knowledge and understanding of business reality and the working of the legal system. Its development has been primarily achieved through on-the-job training, as well as experience with investigating officers and legal counsel.”

Forensic Accountants apply their knowledge to many different financial transactions such as

  • Bank Fraud & Embezzlement
  • Bank Operations & Practices
  • Check Kiting
  • Electronic Transactions
  • Embezzlement
  • Money Laundering
  • Payment Processing & Fraud Detection/Prevention
  • Royalty Audits
  • Claims Analysis
  • Determination of Compliance

A Forensic Accountant’s area of expertise is not limited to financial crimes and fraud. They apply their knowledge to civil matters as well. Their services are useful for breach of contract, business valuations and marital / family law.

Considering the amount of financial litigation out there today, whether it be civil or criminal, the Forensic Accountant’s docket is most likely as full as the courts in which they testify.