State Economic Nexus Standards - UPDATED AS OF 4/19/19
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. For simplicity sake, we have categorized them as South Dakota Economic Nexus (meaning those states that have adopted economic nexus thresholds similar to those adopted by South Dakota, Other Economic Nexus (meaning all other states that have adopted economic nexus thresholds that vary form those adopted by South Dakota) and Marketplace Nexus (meaning those states that have adopted a broader nexus provision, addressing the obligations of remote sellers, marketplace facilitators (e.g., Amazon) and referrers (e.g., commissioned referral agents) that exceed the state's precribes economic nexus thresholds). 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.
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 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.