Wayfair and Nexus: The Aftermath, Part 7 – Thresholds, Timing and Local Taxes
October 30, 2019
States and localities continue to enact sales tax economic nexus rules, apply Wayfair to income tax, and provide guidance in a variety of areas, including what revenue counts toward the thresholds and procedures for registering after the thresholds are exceeded.
States and localities continue to enact economic sales tax nexus rules following the Wayfair decision and issue interpretive and procedural guidance in connection with such rules. Several recent items are summarized below.
On Aug. 29, 2019, the Arkansas Department of Finance and Administration issued Revenue Legal Counsel Opinion No. 20190501. In this opinion, the taxpayer asked about whether its sales for resale should be counted toward the state’s $100,000 economic nexus revenue threshold. According to the opinion, only taxable (i.e., non-exempt) sales are considered for determining economic nexus. Therefore, if a remote seller makes both exempt and taxable Arkansas transactions, once the taxable transactions have met the threshold then the remote seller will have to start collecting and remitting tax.
The opinion then goes on to state that “the remote seller should retain suitable records if making sales into the state that are exempt from tax.” This is significant because it essentially requires that remote sellers collect exemption certificates for all sales into Arkansas, even ones for which the remote seller does not have economic nexus. If the remote seller does not retain appropriate support for the exemption, then those sales may be deemed taxable and that could cause the remote seller to exceed the state’s $100,000 economic nexus revenue threshold.
Massachusetts’ economic nexus sales tax rules went into effect on Oct. 1, 2019, and the Department of Revenue (“DOR”) recently issued guidance on its website in the form of FAQs. Two issues addressed are (i) which sales count toward the threshold and (ii) the timing for remote sellers to collect/remit once they meet the economic nexus threshold. Regarding issue one, the DOR stated that “Massachusetts sales include all of a seller’s sales of tangible personal property or services delivered into the state, including sales exempt from tax.”
In terms of timing, the DOR explained that for the short period beginning Oct. 1, 2019 until Dec. 31, 2019, a remote seller should total its Massachusetts sales from Oct. 1, 2018 through Sept. 20, 2019. If those sales exceed $100,000 then the remote seller is required to register to collect and remit sales tax as of Oct. 1, 2019. If the remote seller’s calendar year 2019 sales exceed $100,000 during Oct. 2019, then the remote seller is required to register to collect and remit sales tax as of Jan. 1, 2020. If the remote seller’s calendar year Massachusetts sales exceed $100,000 on or after Nov. 1, 2019, the remote seller will be “required to begin collection and remittance as of the 1st day of the 1st month beginning two months after the month in which the $100,000 threshold was exceeded.” Thus, a remote seller who exceeds the threshold in Nov. 2019 must register and begin collecting/remitting as of Feb. 1, 2020.
Alaska is one of five states (along with New Hampshire, Oregon, Montana, and Delaware) that does not impose a state sales tax. However, of those five states, it is the only one that permits its cities and boroughs to impose local sales taxes. On Aug. 26, 2019, the City of Nome, Alaska, which has a 5 percent sales tax, approved Ordinance No. O-19-08-01 (Amended) that, among other things, enacts economic nexus. Effective Sept. 1, 2019, a remote seller will have economic nexus if, in the prior or current calendar year, it has at least $100,000 from sales delivered into the state or at least 100 separate sales transactions delivered into the state. Note that the threshold is reached by having sales into Alaska, not the City of Nome specifically. Thus, remote sellers that meet either of the thresholds will have to collect Nome sales tax for sales made into the city. Nome joins the city of Unalaska, which enacted a similar economic nexus ordinance in March 2019.
Pennsylvania joins the small, but growing list of jurisdictions that have issued guidance to apply Wayfair economic nexus rules corporate net income tax. On Sept. 30, 2019, Pennsylvania issued Corporation Tax Bulletin 2019-04, in which it stated that the state will deem there to be a rebuttable presumption that corporations without physical presence in the state but having $500,000 or more of direct or indirect gross receipts from any combination of the following (sourced to Pennsylvania pursuant to the state’s sales factor sourcing rules) will need to file a corporate income tax return:
(1) Gross receipts from the sale, rental, lease, or licensing of tangible personal property;
(2) Gross receipts from the sale of services; and/or,
(3) Gross receipts from the sale or licensing of intangibles, including franchise agreements.
This guidance is effective for tax periods beginning on or after Jan. 1, 2020.
The Wayfair decision and the rules that have been enacted in its wake continue to present ongoing challenges for taxpayers who must stay on top of these changes in order to understand and comply with their tax obligations. Aprio’s SALT team is analyzing new guidance on a daily basis and we are able to assist you with understanding the impact of these rules on your business in order to make sure that you remain in compliance with your state tax obligations and do not incur unexpected liabilities and penalties. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.