Remote sellers and marketplace facilitators, listen up. New internet sales tax rules for online sellers kicked on October 1, 2019, and more than 40 states have now adjusted their sales tax laws since the Supreme Court ruled on the issue in 2018.
That ruling came from the case of South Dakota v. Wayfair, Inc., Overstock.com, Inc., and Newegg, Inc. -- often just referred to as Wayfair -- which focused on whether the physical presence requirement for sales tax should stand, a precedent previously affirmed in Quill Corp. v. North Dakota and others that were decided at a time when very few Americans had access to the internet. Wayfair has been called the “tax case of the millennium” for effectively killing Quill and ruling that states have broad authority to require online retailers to collect sales tax.
The changes from Wayfair affect two targets: remote sellers and marketplace facilitators.
For remote sellers, which are out-of-state sellers that sell online, as of October 1, 2019, the laws changed in seven states to require them to charge sales tax subject to specific criteria. The new state rules are as follows:
- Arizona: Economic nexus and law kicks in with sales only threshold of starting at $200,000 in 2019; the threshold decreases over time to $150,000 in 2020 and $100,000 in 2021 and beyond
- Kansas: Economic nexus law kicks in with no threshold (in other words, there’s no small seller exception)
- Massachusetts: Changes from cookie nexus to full economic nexus with a $100,000 threshold
- Maryland: Economic nexus extended to certain tobacco taxes
- Minnesota: Economic threshold for remote sellers changed to $100,000 or 200 transactions (used to be ten or more retail sales totaling $10 or 100 transactions)
- Tennessee: Economic nexus threshold of $500,000 becomes effective; the optional uniform local rate of 2.25% goes away (specific local sales tax rate in effect for city or county jurisdiction into which the sale was shipped or delivered must be used)
- Texas: Economic nexus threshold of $500,000 becomes effective; there is also an option for single local use tax rate for sales in the state (as opposed to using the rate in each sales tax jurisdiction)
Marketplace facilitators are those consolidated sites like Amazon Marketplace that make it possible for smaller retailers to reach a broad audience without the need for a separate sales platform. As of October 1, 2019, the laws changed in 14 states to require marketplace facilitators to charge sales tax, often subject to criteria. They are:
- Arizona: Marketplace facilitator law with a threshold of $100,000
- California: Marketplace facilitator law with a threshold of $500,000
- Colorado: Marketplace facilitator law with a threshold of $100,000
- Maine: Marketplace facilitator law with a threshold of $100,000 or 200 transactions
- Massachusetts: Marketplace facilitator law with a $100,000 threshold
- Maryland: Marketplace facilitator law has no dollar threshold but requires nexus
- Minnesota: Marketplace facilitator law with $100,000 or 200 transaction threshold
- Nevada: Marketplace facilitator law with $100,000 or 200 transaction threshold
- North Dakota: Marketplace facilitator law with $100,000 or 200 transaction threshold
- Ohio: Marketplace facilitator law with $100,000 or 200 transaction threshold
- Oklahoma: Marketplace facilitator law with $10,000 threshold (can collect or comply with use tax reporting requirements)
- Texas: Marketplace facilitator law has no dollar threshold
- Utah: Marketplace facilitator law with $100,000 or 200 transaction threshold
- Wisconsin: Marketplace facilitator law with $100,000 or 200 transaction threshold
With those changes, of the 45 states that have a general sales tax, 43 have now adopted an economic nexus law or rule since Wayfair. Two states, Florida and Missouri, have general sales tax but no economic nexus (as of this writing).
Changes in online sales tax collection have come quickly, and they can be challenging for retailers. Sellers need to determine which laws affect them by accounting for sales by state (and in some states, tracking by jurisdiction). Tax compliance just became extremely burdensome for sellers, especially small-to-midsize businesses.
Reach out to your BGW teammates to make sure that you’re following the rules. If you use software, make sure that it’s tracking the right kinds of sales and in the right places. Ask questions, and be open to new suggestions. Some sellers are coming to the conclusion that it’s better to abandon their own websites and sell directly on the marketplace since large platforms tend to be better set up to collect and remit tax. In addition, while remote sellers are expected to comply immediately with the new rules, all states except one with marketplace facilitator laws allow up to three years to become 100% compliant (through phase-ins). It’s not a sure thing (to abandon your own site), but exploring creative tax-saving solutions with a qualified accounting professional is always worth the effort.
Give us a call for specific assistance.
Are you selling online? How will Wayfair impact you? Share your comments below.