You might have noticed something different when you recently purchased something on the internet: sales tax. Starting on October 1, 2019, remote sellers and marketplace facilitators in more than a dozen states experienced the changes in sales tax compliance laws. Since a 2018 Supreme Court Ruling, more than 40 states have tweaked their sales tax laws.
Whether physical presence is a requirement for sales tax should stand is the focus of that ruling in South Dakota v. Wayfair, Inc., Overstock.com, Inc., and Newegg, Inc., sometimes just referred to as Wayfair. It had been previously established in National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 and was affirmed in Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992) that the idea that you could only impose sales tax on sales where a retailer maintained a physical presence in a state.
There are two groups that are affected by the changes: marketplace facilitators and remote sellers, explained by the Vice-President of U.S. Tax Policy, Scott Peterson, at Avalara’s, a firm that offers tax compliance software.
Out-of-state-sellers are what remote sellers precisely sound like on the tin. In seven states as of October 1, 2019, the laws changed to require remote sellers to charge sales tax subject to specific criteria.
The following are:
Arizona: Starting at $200,000 in 2019; economic nexus and law kicks in with sales only threshold; then the threshold decreases to $150,000 in 2020 and $100,000 in 2012 and so on
Kansas: In this state, there will be no small seller exception -- which means that the economic nexus law kicks in with no threshold
Massachusetts: Changes to full economic nexus with a $100,000 threshold from cookie nexus
Maryland: Certain tobaccos taxes is where economic nexus extended
Minnesota: Used to be ten or more retail sales totaling $10 or 100 transactions, the economic threshold now changed to $100,000 or 200 transactions for remote sellers
Tennessee: The optional uniform local rate of 2.25% goes away and the economic nexus threshold of $500,000 becomes effective but the specific local sales tax rate in effect for city or country jurisdiction into which the sales were shipped must still be used.
Texas: There is an option for singles local use tax rate for sales in the state and an economic nexus threshold of $500,000 becomes effective
For smaller retailers to reach a broad audience without the need for a separate sales platform, they use marketplace facilitators which are consolidated sites such as Amazon Marketplace. The laws changed in 14 states to require marketplace facilitators to charge sales tax but often subject to criteria effective October 1, 2019.
The following are:
Arizona: A threshold of $100,000 of Marketplace facilitator law
California: A threshold of $500,000 of Marketplace facilitator law
Colorado: A threshold of $100,000 of Marketplace facilitator law
Maine: A threshold of $100,000 or 200 transactions of Marketplace facilitator law
Massachusetts: A threshold of $100,000 of Marketplace facilitator law
Maryland: There is no dollar threshold in the marketplace facilitator law but requires nexus
Minnesota: A threshold of $100,000 or 200 transactions of Marketplace facilitator law
Nevada: A threshold of $100,000 or 200 transactions of Marketplace facilitator law
North Dakota: A threshold of $100,000 or 200 transactions of Marketplace facilitator law
Ohio: A threshold of $100,000 or 200 transactions of Marketplace facilitator law
Oklahoma: A threshold of $10,000 of Marketplace facilitator law and can collect or comply with the use of tax reporting requirements
Texas: There is no dollar threshold in the marketplace facilitator law
Utah: A threshold of $100,000 or 200 transactions of Marketplace facilitator law
Wisconsin: A threshold of $100,000 or 200 transactions of Marketplace facilitator law
Since Wayfair, 45 of the states have a general sales tax and 43 have now adopted an economic nexus law or rule. Two states, Florida and Missouri have no economic nexus yet but have a general sales tax, according to Peterson.
These rapid-fire pace changes for retailers can be very challenging. The seller should account for sales by state and tracking by the jurisdiction in some states for them to figure out which laws affect them. Sellers of small-to-midsize businesses will feel tax compliance burdensome.
Sellers are considering other options now. According to Peterson, some are getting rid of their website and directly selling on the marketplace since larger companies tend to be better to collect and remit tax. Others are pushing for more favorable legislation. All states except one with marketplace facilitator laws allow up to three years to become 100% compliant while remote sellers are expected to comply immediately.
If you are a seller and you do not know what the right thing to do is, better consult your tax professional to make sure that you are following the rules.
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