Update on State Responses to Wayfair

It was just a short three months ago when the U.S. Supreme Court in South Dakota v. Wayfair (Dkt 17-494, 6/21/2018) eliminated the long standing physical presence standard for state and local sales and use tax collection responsibilities (click here for our previous article for more background information). Since then several states have responded by adopting economic nexus laws similar to those adopted by South Dakota and substantially approved by the U.S. Supreme Court. Some states have delayed implementation of existing economic nexus provisions that were in place prior to the Wayfair decision while Massachusetts has doubled down on their position that Wayfair doesn’t apply to prevent them from requiring sales tax collection responsibilities back to October 1^st , 2017. Some states have use tax notification requirements in place that require sellers to provide information on invoices and file annual reports with the state and their customers, thereby helping such states more easily audit their in-state taxpayers. Finally, the U.S. Congress has started to make some inklings that they may assert their authority and impose their own rules. So where do we stand now?

States with Currently Active Economic Nexus Sales Tax Provisions

• Colorado – July 1, 2017 (Use Tax Notification Reporting):  Use tax notification reporting requirement threshold met with $100,000 sales in prior or current calendar year (see below regarding sales tax collection requirements effective December 1, 2018).
• Louisiana – July 1, 2017 (Use Tax Notification Reporting):  Use tax notification reporting requirement threshold met when expected to have $50,000 sales per calendar year (see below regarding sales tax collection requirements effective January 1, 2019).
• Rhode Island – August 17, 2017 (Use Tax Notification Reporting with Sales Tax Collection Election):  Use tax notification reporting threshold met when in the prior calendar year there was at least $100,000 of gross sales or 200 separate sale transactions.
• Massachusetts – October 1, 2017:  Sales tax collection requirement threshold reached when during the prior twelve month period incurred more than $500,000 sales completed over the internet AND 100 sale transactions.  Massachusetts has reiterated in its September 17^th TIR 18-8 that they believe through the presence of applications and cookies on customer devices that out of state companies have physical presence within their state.
• Ohio – January 1, 2018:  Sales tax collection requirement threshold reached in prior or current calendar year more than $500,000 sales and seller (1) uses in-state software to sell or lease taxable property or services; or (2) seller provides or enters into agreement with another person to provide a content distribution network (otherwise Ohio does not currently have a general economic sales tax nexus rule).
• Washington – January 1, 2018 (Use Tax Notification Reporting with Sales Tax Collection Election) Use tax notification reporting threshold met when during prior or current calendar year retail sales exceed $10,000 (see below regarding sales tax collection requirements effective October 1, 2018).
• Pennsylvania – March 1, 2018 (Use Tax Notification Reporting with Sales Tax Collection Election):  Use tax notification reporting threshold met when retail sales in prior calendar year exceed $10,000.
• Hawaii – July 1, 2018:  Sales tax collection requirement met when during prior or current calendar year gross sales exceed $100,000 or 200 sales transactions.
• Maine – July 1, 2018:  Sales tax collection requirement met when during prior or current calendar year gross sales exceed $100,000 or 200 sale transactions.  Maryland decided to not enforce its economic nexus provision back to July 1, 2017.
• Oklahoma – July 1, 2018 (Use Tax Notification Reporting with Sales Tax Collection Election):  Use tax notification requirement reporting threshold met when sales in prior calendar year exceed $10,000.
• Vermont – July 1, 2018:  Sales tax collection requirement met when during prior 12 month period gross sales exceed $100,000 or 200 sale transactions plus some type of active soliciting (phone, internet, brochures, etc.).
• Mississippi – September 1, 2018:  Sales tax collection requirement met when during the prior 12 month period gross sales exceed $250,000.

States with Economic Nexus Laws To Be Effective October 1, 2018

• Alabama:  Sales tax collection threshold met when retail sales during prior calendar year exceed $250,000.  Remote sellers should participate in Alabama’s Simplified Sellers Use Tax Program.
• Illinois:  Sales tax collection threshold met when retail sales during prior or current calendar year with $100,000 sales or 200 sale transactions.
• Indiana:  Sales tax collection threshold met when gross sales in prior or current calendar year exceed $100,000 sales or 200 sale transactions.  Indiana’s economic nexus law was originally to be effective on July 1, 2017.
• Kentucky:  Sales tax collection threshold met when gross sales in prior or calendar year exceed $100,000 sales or 200 sale transactions, delaying the original effective date of July 1, 2018.
• Maryland:  Sales tax collection threshold met when gross sales beginning on October 1, 2018 exceed $100,000 sales or 200 sale transactions.  If threshold not met in 2018 then tracking of sales and sale transactions starts over on January 1, 2019.
• Michigan:  Sales tax collection threshold met when retail sales in prior calendar year exceed $100,000 sales or 200 sale transactions.
• Minnesota:  Sales tax collection threshold met when during the last 12 months there were at least 10 retail sales that total at least $100,000 sales or 100 retail sale transactions.
• New Jersey:  Sales tax collection threshold met when during prior or current calendar year gross sales exceed $100,000 sales or 200 sale transactions.
• North Dakota:  Sales tax collection threshold met when in prior or calendar year taxable sales exceed $100,000 taxable sales or 200 sale transactions.
• Washington:  Sales tax collection threshold met when in prior or current calendar year retail sales exceed $100,000 or 200 sales transactions (see above discussion for Washington regarding use tax notification reporting requirements).
• Wisconsin:  Sales tax collection threshold met when gross sales in prior or current taxable year (for federal income tax purposes) exceed $100,000 sales or 200 sale transactions.

States with Future Economic Nexus Law Effective Dates

• North Carolina – November 1, 2018:  Sales tax collection threshold met when during prior or current calendar year exceed $100,000 gross sales or 200 sale transactions.
• South Carolina – November 1, 2018:  Sales tax collection requirement triggered when in prior or current calendar year gross sales exceed $100,000.
• South Dakota – November 1, 2018:  Sales tax collection requirement triggered when in prior or current calendar year gross sales exceed $100,000 sales or 200 sale transactions.
• Colorado – December 1, 2018 (see Colorado discussion re July 1^st, 2017 use tax notification requirement above):  Sales tax collection requirement is effective on December 1^st when sales in prior or current calendar year exceeded $100,000 sales or 200 sale transactions.
• Connecticut – December 1, 2018:  Sales tax collection requirement triggered when gross sales during the prior 12 month period ended on September 30^th of at least $250,000 sales AND 200 retail sale transactions.
• Georgia – January 1, 2019:  Sales tax collection requirement triggered when retail sales in prior or current calendar year exceed $250,000 sales or 200 sale transactions.
• Iowa – January 1, 2019:  Sales tax collection requirement triggered when gross sales in prior or current calendar year exceed $100,000 sales or 200 sale transactions.
• Louisiana – January 1, 2019 (see Louisiana discussion re July 1^st, 2017 use tax notification requirement above):  Sales tax collection requirement met when gross sales exceed $100,000 or 200 sale transactions in prior or current calendar year.
• Nebraska – January 1, 2019:  Nebraska Department of Revenue has stated they intend to impose economic nexus laws similar to those passed by South Dakota where sales tax collection is triggered when gross sales in prior or current calendar year exceed $100,000 or 200 separate transactions.
• Utah – January 1, 2019:  Sales tax collection requirement met when gross sales in prior or current calendar year exceed $100,000 or 200 sale transactions.

Remaining States

Arizona (is not imposing any economic nexus provisions and is continuing to impose current physical presence nexus rules (employee or rep in state for > 2 days, maintaining office, etc.); Arkansas (provided FAQ’s but did not address economic sales tax nexus), California (just issued reminder about available VDA program and looking to propose a $500,000 gross sales threshold to be applied without retroactive effect), District of Columbia, Florida, Idaho, Kansas (expect to propose legislation in January, 2019 to be effective July 1, 2019), Missouri, Nevada (proposed regulation similar to SD law is being worked on pursuant to their July 25, 2018 press release); New Mexico, New York, (in regards to sales not facilitated by computer software), Ohio (in regards to sales not facilitated by computer software), Tennessee (current $500,000 sales threshold provision is on hold subject to legislative approval), Texas (working on rule to be effective January 1, 2019 with $500,000 sales threshold), Virginia, West Virginia (Governor is opposed to requiring sales tax collection), and Wyoming (has $100,000 sales or 200 sales transactions threshold but has indicated it is reviewing case and will provide further guidance to implement on a prospective basis only).

Proposed Federal Bills

Congress has proposed two bills (“Protecting Businesses from Burdensome Compliance Cost Act” and a bi-partisan “Online Sales Simplicity and Small Business Relief Act”) to help simplify some of the compliance burdens stemming from the Wayfair ruling.  The Protecting Businesses from Burdensome Compliance Cost Act requires states to impose a single local sales tax rate and bans use tax notification reporting requirements for remote sellers.  The Online Sales Simplicity and Small Business Relief Act bans states from imposing sales tax collection responsibilities on remote sellers that have less than $10 million in total sales, delays ability of state to enforce remote sellers to collect sales taxes or require use tax notifications to January 1, 2019, and provides definitions for what constitutes physical presence including an exclusion for in-state employee activity when the employee presence is less than 15 days.

Unfortunately it is very early in the process and there are no strong indications that these bills will move forward or ultimately become law.  Therefore, remote sellers should not count on Congress passing either of these bills to ease the multistate sales tax compliance requirements that companies are now facing with the loss of the physical presence standard.

Next Steps

With a dozen states looking to go live with their economic sales tax collection responsibilities on October 1^st, companies should review their state by state sales in 2017 and through 2018 to determine states where thresholds have been met, identify potential related state nexus issues for other state taxes such as income, gross receipts or net worth taxes and determine approaches to begin filing in additional states as necessary.  If through this process any significant state tax exposures are identified states can still be negotiated with and voluntary disclosure agreements entered into to help mitigate those costs.

Alternatively, for those companies that may be under the threshold of many states but expect to exceed those thresholds in the future and wish to not have to regularly monitor their sales activity going forward, voluntarily registering and filing sales tax returns in all of the states is an option.  The caution in regards to taking this approach is that the company will be on all of the state’s systems and may receive notices and filing requests for other state taxes.

We will continue to monitor state tax developments and issue further guidance in this area as states continue to adopt economic nexus provisions and to see if any momentum occurs with the proposed bills recently introduced in the United States Congress.  We also recommend that your Sikich tax advisor be consulted to help analyze the various state tax exposures that your company may be dealing with and to help identify the best approach to address these significant sales tax compliance issues.