Prepared by Brandon McCafferty, JD/MBA – Senior Tax Manager
On June 21, 2018, the US Supreme Court issued a decision that will drastically increase the power of States to force retailers to collect sales tax. In South Dakota v. Wayfair, the Supreme Court upheld a South Dakota statute allowing it to force retailers who had no employees, inventory, or assets in the State to collect South Dakota sales tax.
Prior to the Wayfair decision, States could only force retailers to collect sales tax if they had a physical presence (employees, inventory, etc.). Now retailers can be forced to collect sales tax if they simply sell a certain number of products in a State. This is called economic nexus. This decision overturned the basic principles of sales tax that had been in effect since sales taxes were first broadly adopted in the 1930s.
Prior to Wayfair: An out-of-state retailer must have had physical presence in a State.
Following Wayfair: An out-of-state retailer must either have a physical presence or meet the State’s economic nexus threshold.
Economic Nexus Thresholds: Varies by State from $10,000 to $500,000 for TPP, electronic products, or services. The threshold may or may not contain a minimum transaction limit.
Pennsylvania: A. Gross revenue of $10,000 during prior 12-month period; B. No transaction limit.
South Dakota: A. Gross revenue of $100,000 in current or prior year; or B. 200 or more separate transactions
Economic Nexus States: There are 34 states with current or pending economic nexus statutes, with more on the way: AL, CO, CT, GA, HI, IL, IN, IA, KY, LA, ME, MD, MA, MI, MN, MS, NE, NV, NJ, NC, ND, OH, OK, PA, RI, SC, SD, TN, UT, VT, WA, WV, WI, WY
Taxpayer Concerns: If your company sells products in multiple States, you will need to know each State’s economic nexus threshold. You will also need to know if those States tax your particular products or services. A product that is taxable in Georgia might not be taxable in California. If you meet a State’s economic nexus threshold, you will need to know how to register your company to collect sales tax and begin filing sales tax returns. To do that, you will need to know the proper sales tax rate in roughly 10,000 jurisdictions.
Hancock Askew can help. We are immediately prepared to assist clients with:
1. Nexus reviews
2. Taxability analyses
3. Exposure analyses
5. Sales tax compliance
6. Sales tax audit defense
7. Voluntary Disclosure Agreements
8. Reverse audits
Please contact our experts with any questions or to learn more about our services.