If you follow the Sales Tax Institute with any regularity, you’re probably aware that we cover and talk about sales tax nexus a lot! And there’s a very good reason for that. Nexus is one of the most important concepts in sales tax. On top of that, nexus has been a hot-button topic for years now. With the advent of online sellers and online marketplaces such as Amazon and eBay, many states have attempted to play catch-up by enacting remote seller nexus legislation. This helps the states capture tax revenue from out-of-state sellers.
There are five different types of remote seller nexus legislation that states have introduced and proposed: click-through, affiliate, economic, marketplace and reporting requirements. Click here to get the definition of each of these types of legislation.
Click-through nexus, affiliate nexus and reporting requirements legislation have been around for a while now, and many states have enacted these types of legislation over the years. And we’re just in the beginning stages of marketplace nexus legislation being introduced. But the really hot trend in sales tax nexus in 2017 is Economic Nexus.
Economic nexus correlates with a set level of sales or gross receipts activity within the state. A common economic threshold is $100,000 of sales into a state or 200 or more sales transactions within a state in a calendar year (Note that the threshold amounts vary by state). In this example, if you are an out-of-state seller who otherwise does not have nexus in the state and meet one of those conditions in a state that has enacted the legislation, you have nexus in the state and are required to collect and remit sales tax on all taxable sales in the state. This nexus provision does not require any physical presence which is the standard that has been in place since the 1992 Quill decision. A number of states follow an economic nexus standard for state income tax. The interest to use this for sales tax is expanding.
We have seen a flurry of activity this year. Economic nexus legislation is being introduced, enacted and challenged in court regularly, and it’s only the beginning of May! Here’s a look at some of the most important economic nexus activity we’ve seen so far in 2017.
On March 6, 2017, Wyoming enacted economic legislation that becomes effective July 1, 2017. Per the legislation, the Wyoming Department of Revenue may bring an action to obtain a declaratory judgment that a seller is obligated to remit sales tax. This provision allows the state to initiate action against remote sellers that do not register to collect the tax.
On April 3, 2017, Massachusetts issued an economic nexus directive for remote sellers. In addition to setting economic nexus thresholds, the directive also provides an expansive definition of substantial physical presence that would create nexus for out-of-state sellers. Among other things, the directive considers software, apps and cookies downloaded on a customer’s computer often used by internet sellers to be tangible personal property owned by the seller as substantial physical presence in the state.
On April 10, 2017, North Dakota enacted economic nexus legislation with an interesting twist. Instead of providing an effective date for the legislation, the bill states that the legislation will become effective on the date the U.S. Supreme Court issues an opinion overturning Quill v. North Dakota, or otherwise confirming a state may constitutionally impose its sales or use tax upon an out-of-state seller in circumstances similar to those specified in the North Dakota legislation.
It hasn’t been all smooth sailing though. We’ve recently seen two high-profile cases spring up where enacted legislation was knocked down in court. An appeal to an assessment against Newegg has been filed in Alabama against its economic nexus rule effective January 1, 2016.
South Dakota enacted economic nexus legislation in early 2016, with an effective date of May 1, 2016. However, on March 6, 2017, the South Dakota Sixth Judicial Court ruled that the state’s economic nexus legislation is unconstitutional. In the ruling, the state acknowledged that under Quill Corp. v. North Dakota, the State of South Dakota is prohibited from imposing the sales tax collection and remittance obligations. The state agreed that the statute was unconstitutional and agreed with the summary judgement finding. This was expected as the case progresses towards an appeal to the U.S. Supreme Court in an effort to overturn Quill.
Tennessee also enacted an economic nexus regulation in 2016, with an effective date of July 1, 2017 for remote sellers to begin collecting and remitting sales tax. On April 10, 2017, a Tennessee judge granted a request to bar enforcement of the legislation until final judgement has been granted on a legal challenge to the regulation from the American Catalog Mailers Association and NetChoice. Until then, the economic nexus legislation will not be enforced by Tennessee.
As you can see, there is a lot to stay on top of when it comes to economic nexus. And that’s not even including click-through nexus, affiliate nexus, marketplace nexus and reporting requirements legislation! Remote seller nexus legislation is very important to stay on top of for sellers making sales in multiple states. And it can be very difficult to stay up-to-date with all of the latest developments.
It’s for this very reason that we created our Remote Seller Nexus Chart. This new chart consolidates information on which states have enacted each of the above types of remote seller nexus legislation along with effective dates in one easy-to-read chart. Each chart entry links to our news item that provides more detail on the legislation. Along with the helpful definitions of each legislation type on the webpage, you’ve got one terrific resource to stay on top of remote seller nexus legislation.
We’re proud to offer you this great resource, and we hope you find it helpful in your career. Click here to start exploring the Remote Seller Nexus Chart. And if you have any questions about how these types of legislation may affect your business, feel free to contact us.
The Multistate Tax Commission (MTC) had negotiated a special deal for online sellers that may have sales and income tax obligations from previous unpaid taxes in 25 different states. The MTC put together a special amnesty initiative program for online sellers that ran from August 17, 2017 to November 1, 2017. The program is now over. If you didn’t take advantage of the program but realize you need to evaluate your activities, check out our Wayfair Risk Analysis consultation.