Multistate Sales Tax: States continue to roll out their own economic nexus laws in response to Wayfair

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Buckingham, Doolittle & Burroughs, LLC

Multi State SellersWe are approaching one year since the U.S. Supreme Court overruled 50 years of precedent to eliminate the “physical presence” bright-line rule for substantial nexus in its South Dakota v. Wayfair decision. Most states have already responded to Wayfair by enacting “economic nexus” laws requiring remote sellers to collect sales tax. This includes larger states, New York, California, Texas and Pennsylvania, which have recently entered the foray of economic nexus. Eventually, all states will enact and enforce economic nexus, so businesses must be prepared to fully comply with this new sales tax environment.

These laws are fairly straightforward and operate in the same basic manner: if a vendor exceeds the specified sales or transaction thresholds, then it is required to collect and remit sales tax. Yet, several precise details of compliance vary significantly from state to state, such as the economic thresholds, effective / enforcement dates, taxability of specific goods or services, and other state tax obligations that registration will trigger.

Most states have modeled their law after the South Dakota law analyzed in South Dakota v. Wayfair: a remote seller that has over $100,000 in sales or 200 separate transactions in the state has substantial nexus and is required to collect sales tax. A minority states, however, have difference thresholds:

  • New York’s threshold is $300,000 of sales of tangible personal property and at least 100 separate transactions
  • Texas and California have a $500,000 sales threshold
  • Several states do not impose a transaction threshold

Businesses must be prepared to comply immediately when they pass the applicable state thresholds.

States’ economic nexus laws are largely already in effect, but there are a few states that have either not enacted them or are delaying enforcement to give time for sellers to adjust to the new rules. For example, Pennsylvania will not enforce economic nexus until July 1, 2019, while Texas’s law will not be enforced until October 1, 2019. Ohio is one of the few states that has not enacted an economic nexus law yet, but is considering thresholds of $100,000 in sales or 200 separate transactions that could enacted through its biennial budget in June (Sub. H.B. 166).

In previous posts, we have discussed the impact that the Wayfair case had on substantial nexus and what businesses must do to comply with multi-state tax obligations in the wake of the Court’s decision. The bottom line is that out-of-state sellers must be prepared to collect sales tax even if they do not have a physical presence in the state. We are continuing to monitor developments in state responses to the Wayfair case and how businesses comply with their multistate tax obligations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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