I’m Making Sales Over the Internet. Do I Have to Collect Sales Tax on All the Sales I Make?
Whether the order is placed over the Internet or through traditional means, if a company has nexus in the state to which the product is being shipped, sales tax should be billed, collected, and remitted to the state of the ship to address.
For example, if a Pennsylvania retailer makes a taxable sale and ships the item to a customer in Pennsylvania, the retailer has nexus and sales tax is collected on the sale. If the Pennsylvania retailer ships the item to a customer in any other state, they will be required to register and collect sales tax if they have nexus in the state into which they are shipping.
If you’re making sales over the Internet and you are using a fulfillment house (eg. Amazon FBA) to fulfill the orders, you may have nexus for sales tax purposes in the state where the fulfillment house is located. The presence of inventory in a state creates nexus for not only sales tax but also for income tax purposes.
Internet sales tax obligations can be created in a number of ways. Online retailers should be aware of click-through nexus, affiliate nexus, and economic nexus laws, which establish a retailer’s presence in a state without the retailer’s direct physical presence. Visit our What is Nexus? FAQ to learn more about these types of nexus.
On June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, Inc., addressing South Dakota’s economic nexus law. This decision overruled the physical presence rule for sales tax nexus for sales made over the internet. States now have right to require tax collection from online retailers and other remote sellers that do not have physical presence in their states. Looking strictly at the South Dakota economic nexus legislation addressed in the case, South Dakota’s law minimizes the burden on online and out-of-state sellers. The legislation provides a safe harbor for small sellers: a remote seller must make in-state sales exceeding $100,000 or makes 200 or more separate sales transactions in the previous or current calendar year for the nexus provision to apply. The legislation also ensures that the nexus provision does not apply retroactively.
Many other states have enacted economic nexus legislation as South Dakota has done in order to capture sales tax on sales made over the Internet. To stay updated on this type of legislation, visit our Remote Seller Nexus Chart to see legislative activity in each state and our Economic Nexus State Guide for a detailed chart on economic nexus rules across the states post-Wayfair. For more information on the Wayfair decision and how states are reacting, you can visit our Remote Seller Resources page, watch Diane Yetter’s live debrief and Q&A session, and read our updated nexus whitepaper: Nexus After Wayfair – What You Need to Know.
In 2017, the Multistate Tax Commission (MTC) negotiated a special deal for online sellers that may have had 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, you can contact us here. You can also visit our Sales Tax Amnesty Chart to find a list of states with active sales tax amnesty programs. For example, Indiana is running an amnesty program through June 30, 2019 for online sellers that have inventory located in a third-party Indiana warehouse and sell to Indiana customers.
Looking for more information? Check out the following resources:
- Learn about nexus and other important concepts with our Sales Tax 101 webinar on-demand. – it is newly updated to reflect the Wayfair decision.
- Visit our Economic Nexus State Guide for information such as effective dates, thresholds, and includable sales for online, out-of-state sellers making sales into states that have enacted economic nexus legislation.
- Download our Nexus After Wayfair – What You Need to Know whitepaper.