The Unseen Challenges of Indirect Taxes
While adjusting to his new role, Mike worked with Kelsey Althoff, Sales and Use Tax expert, and her team at Clearview to tackle the new potential indirect tax challenges the software company was facing.
Challenge 1: Sales Tax on Intangibles – SaaS
Kelsey and the team got straight to work, identifying the areas where MyFitnessPal could have indirect tax liabilities.
“Many companies don’t consider tax when they think about intangibles like software,” explains Kelsey.
Since not all states charge sales tax on SaaS (software-as-a-service), Clearview worked with MyFitnessPal to ensure they were covered in all the areas related to sales taxes.
Challenge 2: Third-Party Delivery Channels
As with most apps, many of MyFitnessPal’s sales are through third-party app stores like Apple iTunes and Google Play. This adds another layer of complexity to sales tax liability.
“We had to determine how these intermediaries would affect the sale,” states Mike.
Companies like Apple sometimes charge and remit sales tax on a mobile app's behalf, but every carrier is different.
“It’s a mixed bag,” Kelsey explains. “When dealing with some of the smaller marketplaces or with direct sales, MyFitnessPal is responsible for having processes in place to ensure the company stays compliant.”
The team put proper protocols and procedures in place for each carrier, and they are now running “like a well-oiled machine,” says Kelsey.
Challenge 3: New Remote Work Policy - Impacts on Nexus
Up to that point, MyFitnessPal had sales across the U.S., but only had employee presence in a few states, including California and Texas.
After the transition of ownership in 2020, MyFitnessPal moved to a “remote is equal” employment policy, which Mike knew would impact their tax liability.
“I thought to myself, ‘I better call Kelsey,’” he explains.
Clearview helped Mike’s team make strategic decisions about how to open up the company to remote workers across the nation, including in view of the Wayfair Case of 2018.
What is Wayfair?
South Dakota v. Wayfair, Inc., 585 U.S. (2018), was a United States Supreme Court case that held by a
5–4 majority that states can compel out-of-state sellers (remote sellers) to collect sales tax even
if they do not have a physical presence in the taxing state.
“This was a great decision as it allowed us time to figure out how hires in these states will impact us on the back-end,” Mike explains. “Today, we are happy to be able to hire in almost any state.”
“I cannot possibly keep up with all 50 states’ sales and indirect taxes criteria,” Mike says. “That’s why we keep Clearview by our side.”
Challenge 4: New Remote Work Policy - Use Tax Self-Assessment
Once MyFitnessPal expanded its presence to having employees based in more than 30 states, it was time to adjust the company’s use tax reporting process.
The company changed its self-assessment process.
As a result, certain items that were previously taxable before the company was fully-remote, were no longer subject to use tax when allocated to certain other states where remote employees worked.
Mike was pleased, “This actually saved us money.”
