It’s hard to believe that six years have passed since the landmark South Dakota v. Wayfair Supreme Court decision reshaped the sales tax landscape. This pivotal decision allowed states to impose sales tax obligations on remote sellers based on economic nexus, significantly changing the way businesses handle tax compliance. As we move further into the post-Wayfair era, the impact of this decision continues to evolve, influencing state legislation and business practices in profound ways.
Let’s explore the top three emerging trends in sales tax that are shaping the current and future landscape. From states dropping their transaction count thresholds to the Streamlined Sales Tax Governing Board providing detailed guidance and best practices, and new implications for businesses regarding inventory locations—these developments are crucial for staying compliant and optimizing tax strategies. Dive in with us as we dissect these trends and what they mean for your business.
In the six years since the landmark Wayfair decision, one significant trend has been the movement by states to drop their transaction count thresholds for sales tax nexus. The states have listened to the pleas of businesses that are forced to register with minimal sales into a state just because they have exceeded 200 transactions.
Recently, several states have made changes in this regard. Effective July 1, 2024, Wyoming no longer requires 200 transactions as part of the state’s economic nexus threshold. Remote sellers will now only be required to register and collect the state’s 4% sales tax for sales in the state if they surpass the $100,000 gross sales threshold. Effective January 1, 2024 retroactively, Indiana has removed the 200-transaction count from its economic nexus threshold. As of that date, a retail merchant that does not have a physical presence in Indiana is required to collect and remit Indiana sales tax on retail transactions made in the state if the merchant’s gross revenue from any combination of the following three items exceeds $100,000 for the current or preceding calendar year: The sale of tangible personal property that is delivered into Indiana; The sale of a product transferred electronically into Indiana; The sale of a service delivered in Indiana. Also effective July 1, 2024, North Carolina has dropped its 200 transaction count. Nexus will be based on whether the seller has exceeded $100,000 of gross sales into the state. Specific rules on how to determine when a seller can cancel a registration if they had been registered solely due to exceeding the 200 transactions.
This follows similar developments in other states that have removed the transaction count from their economic nexus thresholds, such as Colorado, Iowa, Louisiana, South Dakota, Washington, Wisconsin, and more.
This trend is great news for businesses and aligns with the testimony given by our own Diane Yetter, Founder of the Sales Tax Institute, to the Senate Finance Committee in June 2022. In her testimony, she explained the compliance burden the 200-transaction threshold puts on the smallest of sellers. Based in part on this testimony, the Streamlined Sales Tax Governing Board has encouraged all member states still using the 200-transaction threshold to remove it. As part of the SST Disclosed Practice #8 which provide guidance on numerous issues related to remote sellers, marketplace seller and marketplace facilitators, the SST Governing Board has affirmatively voted to consider it a state best practice to eliminate the 200-transaction count portion of the threshold. We hope that all states, not just SST member states, will follow suit and eliminate this burden.
Companies across the board struggle to determine if they are crossing these thresholds in each state, creating a substantial compliance burden. It’s not practical to memorize the varying requirements and qualifications that each state imposes on sellers, making it a challenging task to ensure compliance.
Stay tuned as we continue to monitor and report on these crucial changes that can significantly impact your business operations. You can find the latest threshold changes using our Economic Nexus State by State Chart.
The Streamlined Sales Tax (SST) initiative continues to play a pivotal role in simplifying and standardizing sales tax compliance across its member states. One of the key ways SST achieves this is by updating and disseminating best practices and detailed guidance on various nuances that impact businesses. A prime example of this is the recently updated Disclosed Practice 8 (DP 8).
Disclosed Practice 8 provides comprehensive definitions and guidance on several critical aspects of sales tax compliance. It outlines what constitutes a remote seller and delves into the implications of having a non-sales-related employee in a state on nexus. This practice helps businesses understand how economic thresholds are applied within SST states and what types of transactions are included in these thresholds.
DP 8 also clarifies the time period for measuring economic thresholds and provides clear instructions on when businesses need to register and start collecting sales tax. It even addresses scenarios where a remote seller’s sales fall below the threshold, explaining when they are permitted to stop collecting and deregister.
An ongoing work group is evaluating additional questions that will help clarify activities and issues related to remote sellers. Updates of some questions are included in the August 1, 2024 update with more coming soon.
This detailed guidance ensures that both remote sellers and marketplace facilitators have a clear understanding of their obligations, reducing the risk of non-compliance and helping to streamline their tax processes. This not only simplifies the compliance process but also helps mitigate the risk of audits and penalties.
As the sales tax landscape continues to evolve, the Sales Tax Institute is here to provide you with the most current information and resources to navigate these changes effectively. Stay tuned for more insights and expert guidance to help your business thrive in an ever-changing regulatory environment.
The presence of inventory in a state can greatly influence your tax obligations, and understanding these nuances is crucial for maintaining compliance.
The concept of physical nexus has long been a cornerstone of sales tax regulations, and inventory plays an important role in establishing this nexus. State interpretations of what constitutes physical nexus can vary significantly, impacting your status as a remote seller and the type of registration you need with a state. Some states consider having inventory within their borders as creating a physical nexus, thereby obligating you to collect and remit sales tax, while others may not. New York and Arizona have historically offered a nexus protection for using an instate fulfillment agent. With the adoption of marketplace facilitation collection responsibilities, we have seen other states eliminate the creation of physical presence due to inventory in a 3rd party warehouse specifically when the seller does not control the inventory such as with an Amazon FBA warehouse. Texas, Illinois, Kansas and Iowa are some of the states that have taken this position administratively. And in the Online Merchants Guild case from Pennsylvania, this activity will not create physical presence.
For businesses, this means staying vigilant about where your inventory is stored and understanding the specific rules of each state. Being unaware of these requirements can lead to under-collecting or over-collecting sales tax, both of which can have serious repercussions.
The trends we’ve discussed underscore the importance of staying informed and adaptable. Navigating these changes can be complex, but they also present opportunities for businesses to streamline their compliance processes and reduce the administrative burden. By understanding and leveraging these trends, you can position your company for success in a dynamic regulatory environment.