Wayfair and Sales Tax Nexus: Let the Aftermath Begin

There has been a flurry of state activity leading up to and following the Wayfair decision, as states begin the process of sorting out when and how they will enforce these new rules.

It has been approximately six weeks since the U.S. Supreme Court’s landmark decision in South Dakota v. Wayfair, which we wrote about in last month’s SALT newsletter.  Leading up to the decision and in the weeks that followed, there has been a flurry of activity as states consider the impact of the case and how they plan to respond and provide guidance to taxpayers.  Summaries of some of the activity is provided below.[1]

Alabama

On July 3, 2018, the Alabama Department of Revenue announced that the state’s existing sales tax economic nexus regulation (Rule 810-6-2-.90.03), which took effect in January 2016, will be enforced prospectively for sales made on or after Oct. 1, 2018.  Therefore, all remote sellers with Alabama sales in excess of the $250,000 small seller exemption must register for and begin collecting the state’s Simplified Sellers Use Tax (SSUT).  The SSUT is a program enacted a couple of years ago that allows remote sellers that are accepted into the program to collect a flat 8 percent on all Alabama sales and remit those taxes to the Alabama Department of Revenue.

Connecticut

On June 14, 2018, Governor Malloy signed SB 417, which added an economic nexus provision.  Effective Dec. 1, 2018, an out-of-state retailer will be required to collect and remit Connecticut sales/use tax if it regularly and systematically solicits sales in the state (including via the Internet) and, during the preceding 12-month period ending on Sept. 30, it has (1) more than 200 retail sale transactions AND (2) at least $250,000 of gross receipts.

Hawaii

On June 12, 2018, Governor Ige signed SB 2514.  Under that bill, a business will be subject to the state’s General Excise Tax if, during the current or immediately preceding calendar year, such business has at least (1) 200 Hawaii sale transactions or (2) $100,000 of Hawaii sales.  The bill was applicable for tax years beginning on or after Jan. 1, 2018.  However, the Hawaii Department of Taxation issued amended Tax Announcement 2018-10 on July 10, 2018, to explain the implementation of these new rules, and it made clear that due to the retroactivity concerns addressed in Wayfair, enforcement would not be applied before July 1, 2018.

Indiana

The state enacted an economic nexus rule in 2017 (in excess of $100,000 in sales or 200 or more transactions) and there is litigation pending in the Indiana court system.  The Indiana Department of Revenue has a web page devoted to the Wayfair case with answers to many frequently asked questions, and it states that pending resolution of the litigation, the state will begin enforcement of its economic nexus rule on Oct. 1, 2018.

Iowa

On May 30, 2018, Governor Reynolds signed SF 2417, which added an economic nexus provision.  Effective Jan. 1, 2019, an out-of-state retailer will be required to collect and remit Iowa sales/use tax if, during the current or immediately preceding calendar year, it has (1) 200 or more Iowa sale transactions or (2) at least $100,000 of Iowa sales.  Additional information can be found on the state’s Wayfair web page.

Kentucky

The Kentucky Legislature passed HB 487 on April 14, 2018, and it became law without the Governor signature on April 27, 2018.  Out-of-state retailers are required to collect and remit Kentucky sales/use tax if, during the current or immediately preceding calendar year, it has (1) 200 or more Kentucky sale transactions or (2) $100,000 or more in Kentucky sales revenue.  The rule took effect on July 1, 2018, but a notice posted on the Department of Revenue’s website on July 30, 2018, gives business who have economic nexus until Oct. 1, 2018, to complete their sales tax registrations.

Louisiana

On June 12, 2018, Governor Reynolds signed HB 17, which added an economic nexus provision.  An out-of-state retailer will be required to collect and remit Louisiana sales/use tax if, during the current or immediately preceding calendar year, it has (1) 200 or more Louisiana sale transactions or (2) $100,000 or more of Louisiana sales revenue.  Following the Wayfair decision, the state made the following announcement: “The Supreme Court overruled the physical presence requirement in Quill for remote retailers, but the high court remanded the case back to the lower court for further decisions on the South Dakota law.  While Louisiana is in a good position having adopted a provision very similar to the South Dakota law, we are still some time away from a final decision and seeing the full impact.”

Maryland

Although the state has not enacted an economic nexus law, following the Wayfair decision it issued a Tax Alert in which it stated the following: “Pursuant to Maryland law, the Comptroller’s Office shall impose sales tax collection requirements as broadly as is permitted under the United States Constitution. If you sell or deliver tangible personal property or a taxable service for use in Maryland, you should review and analyze the United States Supreme Court’s decision in South Dakota v. Wayfair, Inc. to identify how it affects you.”  While further guidance is required, it appears that Maryland plans to enforce an economic nexus sales tax standard.

Nebraska

The state has not enacted an economic nexus law; nonetheless, it issued the following statement on July 27, 2018, in response to the Wayfair decision: “The Department plans to administer the collection responsibility consistently with the Supreme Court’s decision in Wayfair, which looked favorably upon an exception for remote sellers with sales of $100,000 or less or with fewer than 200 separate transactions in the state annually. The Department does not intend to pursue retroactive sales tax collection from remote sellers that did not have physical presence in Nebraska for sales made to customers in Nebraska prior to Jan. 1, 2019. Depending on the final outcome of the Wayfair litigation — which remains pending in South Dakota — the Department may seek legislation in the 2019 legislative session as needed.”  Therefore, Nebraska plans to enforce an economic nexus rule similar to South Dakota’s on Jan. 1, 2019.

Nevada

Although the state has not enacted an economic nexus law, following the Wayfair decision the Nevada Department of Taxation posted the following on its Wayfair webpage: “Although there has been no change in the law itself (the decision just overturns a prior decision based on the same law), Nevada along with other states that are members of the Streamlined Sales Tax Governing Board (AR, GA, IA, IN, KS, KY, MI, MN, NE, NV, NJ, NC, ND, OH, OK, RI, SD, TN, UT, VT, WA, WV, WI and WY) have all agreed to apply this ruling on a prospective basis for remote sellers that are not already registered with their state. . . .  Nevada will establish thresholds for when a remote seller is required to collect and remit sales tax. Under the proposed thresholds, businesses will be required to register and collect and remit sales tax if the gross revenue of retail sales into Nevada in the prior or current year is greater than $100,000 or the business conducts 200 or more retail sales into the state.”  There is no specific effective date regarding enforcement of this policy.

North Dakota

The state enacted an economic nexus rule in 2017 (at least $100,000 in sales or 200 or more transactions).  Following the Wayfair decision, the Tax Commissioner’s Office posted a “Remote Seller Sales Tax” web page on which it stated that the economic nexus rules will be enforced for each business beginning on the later of Oct. 1, 2018, or 60 days after a business has met the economic nexus threshold.

Oklahoma

On April 12, 2018, Governor Fallin signed HB 1019, which added a sales tax collection requirement for remote sellers who have at least $10,000 in sales to Oklahoma.  Remote sellers meeting that requirement must elect, by July 1, 2018 (and by June 1 of each year starting in 2019), either to register for and collect/remit sales and use taxes or to comply with use tax notice and reporting requirements.

Rhode Island

The state enacted an economic nexus rule in 2017 (at least $100,000 in sales or 200 or more transactions).  On July 6, 2018, following the Wayfair decision, the state issued Publication 2018-06 (which it amended on July 20, 2018) addressing some frequently asked questions.  Based on this, it appears that Rhode Island is now enforcing its economic nexus rules.

Utah

During Utah’s 2018 Second Special Legislative Session, the legislature enacted SB2001 (signed by Governor Herbert on July 21, 2018, and effective on Jan. 1, 2019), which contains an economic sales tax nexus provision.  Under the bill, a remote seller would be required to collect/remit Utah sales and use taxes if, during the current or immediately preceding calendar year, the remote seller has (1) 200 or more Utah sale transactions or (2) more than $100,000 of Utah sales revenue.

Vermont

The state enacted an economic nexus rule in 2016 (at least $100,000 in sales or 200 or more transactions).  Following the Wayfair decision, the Vermont Department of Taxes posted a Wayfair web page on which it stated that the economic nexus rules would be enforced beginning July 1, 2018.

Wisconsin

Although the state has not enacted an economic nexus law, following the Wayfair decision the Department of Revenue posted the following statement on its website: “Beginning Oct. 1, 2018, Wisconsin will require remote sellers to collect and remit sales or use tax on sales of taxable products and services in Wisconsin. New standards for administering sales tax laws on remote sellers will be developed by rule. The rule will be consistent with the Court’s decision in Wayfair, which approved a small seller exception for sellers who do not have annual sales of products and services into the state of (1) more than $100,000, or (2) 200 or more separate transactions.”

Several other states not listed above have indicated that they are currently reviewing the impact of the Wayfair decision, and therefore, it is likely that more states will be issuing guidance.  As can be seen from the information above, each state’s enforcement is different, and businesses must keep track of this information in order to make sure that they remain in compliance with these new rules.

Aprio’s SALT team is constantly monitoring this information and can assist clients by reviewing their data and determining where they may have sales tax compliance obligations.  For businesses that find themselves a bit overwhelmed by the increased sales tax compliance obligations, we can also assist with a turn-key sales tax compliance outsourcing solution.

This article was featured in the July 2018 SALT Newsletter. 

[1] In a recent SALT newsletter article, we summarized Georgia’s new economic sales tax nexus rule effective 1/1/19.  For a summary of many of the states that enacted economic sales tax nexus rules in 2017, please see our May 2017 SALT Newsletter article and our November/December 2017 SALT Newsletter article.  Please note that even if not specifically mentioned, some of the state economic nexus rules may provide on option to collect/remit tax or to comply with notice and reporting requirements.  It is important to review each state’s rules in detail.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.