As a result of the United States Supreme Court’s decision in South Dakota v. Wayfair, many states have been scrambling to draft sales tax nexus laws which will effectively eliminate the prior physical presence threshold requirements. A number of states have already begun to enforce such remote sales tax filing requirements as of October 1, 2018 (see Footnote 1) with many more states set to implement and/or enforce its sales tax economic nexus rules as early in the coming months. In addition, some states have already been enforcing Wayfair-based economic sales tax nexus (see Footnote 2).
Unlike state income taxes which are the responsibility of a company, sales taxes are not paid by the company. Rather, the vendor/retailer collects sales tax from its customers and remits state and local sales taxes to the appropriate taxing jurisdiction. Therefore, it is important for companies to fully assess their sales tax collection and compliance responsibilities under this “new normal”. Failure to register in a state will cause a company to be out of pocket for monies it could have collected from its customers, if the state later determines the company should have registered and collected.
If a company falls within the economic sales tax nexus criteria explicitly set forth by a state, it is recommended that the company register and begin collecting in a state in order to avoid sales tax exposure down the road. If a company never begins to file sales tax returns in a state, the statute of limitations (or period of years in which a state can go back and audit a company) never starts to run leaving a company open to sales tax exposure from the date the Wayfair rules took effect.
If a state has not yet begun to enforce/implement Wayfair nexus, it is nonetheless vital for a company to assess whether it otherwise has a physical presence including inventory in an Amazon Warehouse which is nexus creating for state sales taxes (and income taxes as well). Now is the time to review whether your company has nexus in a state under the traditional physical presence standard or under the new normal Wayfair standard.
We strongly recommend that you determine whether and into which states you are selling products and/or services as this area will only become more and more complex until and unless Congress steps in to create consistent laws for all states.
Footnote 1: States enforcing Wayfair as of October 1, 2018 include: Alabama ($250,000 in sales; no transaction threshold), Illinois ($100,000 in sales or 200 or more transactions), Indiana ($100,000 in sales or 200 or more transactions), Kentucky ($100,000 in sales or 200 or more transactions), Maryland ($100,000 in sales or 200 or more transactions), Michigan ($100,000 in sales or 200 or more transactions), Minnesota ($100,000 in 10 transactions or 100 total transactions), North Dakota ($100,000 in sales or 200 or more transactions), Washington (100,000 in sales or 200 or more transactions; as an alternative, businesses with sales between $10,000 and $100,000 and less than 200 transactions must comply with Washington’s Notice and Information Reporting requirements) and Wisconsin ($100,000 in sales or 200 or more transactions). States enforcing Wayfair as of November 1, 2018 include New Jersey ($100,000 in sales or 200 or more transactions), North Carolina ($100,000 in sales or 200 or more transactions), South Carolina ($100,000 in sales; no transaction threshold ) and South Dakota ($100,000 in sales or 200 or more transactions ). Colorado ($100,000 in sales or 200 or more transactions) and Connecticut ($250,000 in sales or 200 or more transactions) will begin to enforce Wayfair as of December 1, 2018 and Georgia, ($250,000 in sales or 200 or more transactions), Iowa ($100,000 in sales or 200 or more transactions), Louisiana ($100,000 in sales or 200 or more transactions), Nebraska ($100,000 in sales or 200 or more transactions), Utah ($100,000 in sales or 200 or more transactions) and West Virginia ($100,000 in sales or 200 or more transactions) will begin to enforce Wayfair as of January 1, 2019.
Footnote 2: States already enforcing Wayfair-based economic sales tax nexus, and/or an alternative sales tax notice and reporting requirements include: Hawaii, Maine, Massachusetts, Mississippi, Ohio, Oklahoma, Pennsylvania, Rhode Island and Vermont.
For more information on how any of these changes might impact you or your business, please contact your tax advisor or Faith Gorman, Director – State & Local Tax, at [email protected] or 561.886.5286 or Joanna Zhang at [email protected] or 561.886.5255.
