State Economic Nexus Standards - UPDATED AS OF 10/18/19
In the wake of the U.S. Supreme Court's decision in South Dakota v. Wayfair, states may now require remote sellers with no physical presence in a state to collect sales tax on sales of taxable products and services delivered to customers in that state. This ruling does not simply affect online retailers, but all sellers of taxable goods and services who make sales into state in which they lack physical presence. Attached as an informational reference tool is a listing of the states that have adopted some form of economic nexus standard. As noted, many of these states have adopted Notice and Reporting Requirements, which may impose obligations on a remote seller regardless of whether the seller exceeds the state's economic nexus thresholds. However the trend is for states to either not adopt Notice and Reporting election provisions or to eliminated them, as Washington State recently did.
Each of these states may have aspects of their laws that vary form the South Dakota law, which itself is still subject to consideration on remand from the US Supreme Court to the lower court for aspects of the the law not inconsistent with the Court's ruling in Wayfair regarding the physical presence rule. As such, each of these state economic nexus standards may be subject to judicial scrutiny to the extnet they may impose an undue burden on interstate commerce. Furthermore, states that have adopted these laws are only beginning to address the effective date that they intend to implement enforcement of the economic nexus standard in their state.
State Marketplace Facilitator Compliance Standards
Since Washington State first adopted a requirement that marketplace providers must collect and remit sales tax directly to the Department for all sales made on their marketplace, more states have chosen to impose sales tax compliance obligations on marketplace providers or facilitators, with this number now at thirty-eight (38) states. Attached as an informational reference tool is a listing of the states that have adopted some form of a marketplace facilitator nexus standard. Though the deifnition of a marketplace facilitator must be determined on a state by state basis (and is beyond the scope of this article), typically a marketplace facilitator is a business that provides a forum or platform on which third party sellers can advertise and sell their products, and on which the marketplace also provides billing and collection (directly or indirectly), or sets prices, or provides inventory storage and/or fulfillment services, among other things. The more recent trend among states, including California, is to adopt a broader definition of “marketplace facilitator”, including any business that lists a marketplace seller’s items for sale on their platforms.
State Notice & Reporting Requirements
A number of states have also adopted Notice & Reporting Requirements, which compel remote sellers, typically whose annual sales exceed a certain threshold - often as low as $10,000 - to elect to either (1) to collect and remit sales tax on sales to customers in the state, despite lacking a physical presence, or (2) to notify customers on their website and on each invoice of the customer’s use tax reporting obligation, and to provide annual information to each customer and to the Department of Revenue regarding all sales customers in the state. Failure to do so results in penalties that typically are larger than the remote sellers sales in that state. For your consideration, attached as an informational tool is a listing of the states that have adopted notice and reporting requirements.
As such, it is incumbent on every remote seller to proactively engage someone - externally or internally - to closely monitor these and every state regarding implementation and enforcement of these provisions. Furthermore, every remote seller should implement processes to proactively monitor its sales activity - by revenue and transaction amount - both historically and prospectively, to ensure that they are meeting their obligations in each state and mitigating any historical exposure. Lastly, to the extent that a remote seller has or had physical presence nexus in a state (eg., by virtue of inventory in a third party fulfillment center), that seller should engage an expert to discuss the options to register and/or negotiate resolution of historical liabilities.