Economic Nexus Update: July 8, 2020 – TN, LA, IL

As we have previously reported, since the U.S. Supreme Court’s landmark decision in South Dakota v. Wayfair, 585 U.S. __ (June 21, 2018), forty-four (44) states have adopted economic nexus provisions for sales tax compliance purposes.  The biggest trends right now continue to be that states are revising their thresholds and also adopting marketplace nexus provisions.

Recently enacted Tennessee and Louisiana legislation imposes compliance obligations on marketplace facilitators.  In addition, recent Tennessee legislation reduces the economic nexus threshold for remote sellers and remote marketplace facilitators, while Louisiana and Illinois have changed or reiterated the compliance obligations impacting remote sellers and marketplace facilitators in these states. 

We highlight some of these below:

1. States Adopt or Modify Economic Nexus Provisions – TN
   • Tennessee – Effective October 1, 2020, SB 2932 reduces the sales threshold for remote sellers and marketplace facilitators from $500,000 to $100,000 in gross annual sales of products and services.  Once a remote seller or marketplace facilitator exceeds this sales threshold, if it engages in the regular or systematic solicitation of consumers in Tennessee through any means, the retailer must register for sales or use tax collection and remittance requirements by the first day of the third month after exceeding the threshold.

 

2. States Adopt or Modify Marketplace Nexus & Compliance Provisions – TN, LA
   • Louisiana –  Effective July 1, 2020,  SB 138 provides that marketplace facilitators are required to collect and report sales tax on all sales on their marketplace if they have physical presence or economic nexus.  For economic nexus, marketplace facilitators that exceed $100,000 in sales or have at least 200 transactions in Louisiana in the current or previous calendar year to comply with the new law. Beginning July 1, 2020, marketplace facilitators must register with the Louisiana Sales and Use Tax Commission for Remote Sellers within 30 days of meeting either the $100,000 annual sales threshold or 200-transaction threshold. Facilitators must begin collecting the state and local sales tax no later than 60 days after approval from the commission.   A marketplace facilitator is defined broadly as a person who facilitates a sale for a seller by offering for sale through any means, by a seller, tangible personal property or sales of services for delivery into Louisiana or collecting payment from the purchaser and transmitting all or part of the payment to the seller.
   • Tennessee – Beginning October 1, 2020, SB 2182 provides that marketplace facilitators are required to collect and report sales tax on all sales on their marketplace if they have physical presence or economic nexus (see TN economic nexus threshold above).  For purposes of the legislation, a marketplace facilitator is an entity that  for consideration, regardless of whether characterized as fees from the transaction, contracts or otherwise agrees with a marketplace seller to facilitate the sale of the marketplace seller's taxable tangible personal property or services through a physical or electronic marketplace operated, owned, or otherwise controlled by the person or the person's affiliate; and either directly or indirectly through contracts, agreements, or other arrangements with third parties, collects the payment from the purchaser of the marketplace seller's taxable property or services and transmits payment to the marketplace seller.  In addition, the legislation imposes destination sourcing for sales to Tennessee customers.  As such, sales tax rates and collections are based on the customer location to which items are shipped to the customer.

 

3. Other Changes Impacting Remote Sellers and Marketplace Facilitators – IL, LA

• Louisiana – On May 19, 2020, the Louisiana Sales and Use Tax Commission for Remote Sellers (“Commission”) issued guidance explaining that the state will enforce economic sales tax nexus on remote sellers beginning July 1, 2020.  Whereas historically remote sellers were permitted to register as Direct Marketers and collect state and local parish tax at a flat 8.45% rate to the Louisiana Department of Revenue, beginning July 1, 2020 the Commission will serve as the tax collecting entity for the benefit of state and local taxing jurisdictions. Effective July 1, 2020, remote sellers and marketplace facilitators must register with the Commission to collect state and variable local parish taxes based on the customer location to which taxable goods and services are delivered.  New registrants can apply for a sales tax account at the Commission’s website (https://remotesellersfiling.la.gov/).  Remote sellers registered as direct marketers will receive correspondence from the Louisiana Department of Revenue (“Department”) and the Commission explaining the streamlined, transition process with step by step details. No action is required until those direct marketers receive this correspondence.  The Commission will automatically transfer their existing account to a new remote seller account, however taxpayer will have to create a profile for their account at the Commission’s website in order to file returns and manage their account.  Direct marketers who do not meet the economic nexus thresholds may continue to collect at the 8.45% and remit the tax to the Department.
• Illinois – Pursuant to Compliance Alert - CA-2020-3 (N-02/20), Illinois Department of Revenue, February 2020, the Illinois Department of Revenue (Department) clarifies that marketplace sellers with a physical presence in Illinois will be responsible to collect and remit Retailer’s Occupation Tax (ROT)on their sales to Illinois residents.  In the alert, the Department explains that their marketplace legislation shifts the obligation to collect and remit Illinois Use Tax (UT) from the marketplace seller to the marketplace facilitator, effective January 1, 2020. For most marketplace sales involving a facilitator that has economic nexus, a marketplace facilitator is now the retailer for sale and the marketplace seller, are not the retailer for these sale.  However, when the tax required to be remitted to Department for a marketplace sale is ROT, the marketplace seller is the retailer for that sale, not the marketplace facilitator. Marketplace sellers that make sales subject to ROT are required to be registered, file a return, and remit ROT for that sale (including all applicable local taxes). The marketplace facilitator is not the retailer and has no legal authority to remit ROT to IDOR for that sale. Most often, marketplace sellers incur ROT when purchases are filled from inventory in Illinois.  This development adds complexity to compliance for marketplace sellers that use marketplace facilitators such as Amazon to also provide fulfillment services, as some sales to Illinois customers will be fulfilled using inventory located in Illinois warehouses.

 

We will continue to monitor these state legislative and administrative changes as they impact sales tax nexus and compliance obligations for remote sellers, and have updated the Economic Nexus Reference Tools on our website for you.