2017 Multi-State Legislative Update: Sales Tax Economic Nexus

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In direct contravention of the Supreme Court’s Quill decision, several states have passed legislation requiring remote sellers to collect and remit sales/use tax when they meet certain revenue and/or transaction thresholds.

State legislative sessions are in full swing, with some state sessions already complete. One of the most highly anticipated issues to be addressed by state legislatures is economic nexus rules for sales tax. As we have discussed at length in articles featured in several past newsletters, U.S. Supreme Court Justice Kennedy wrote an opinion in which he suggested that it was time to revisit the physical presence requirement for sales tax nexus, and both Alabama and South Dakota adopted sales tax nexus rules. [1] The rules in both states are currently being challenged in court (and the South Dakota law is currently enjoined), but that has not stopped other states from enacting their own sales tax economic nexus rules.

Tennessee: On Oct. 3, 2016, the Department of Revenue adopted Rule 1320-05-01-.129 (Rule 129) that established sales tax nexus if the taxpayer makes over $500,000 of sales into the state during the trailing 12-month period. Businesses that meet the threshold must register with the state by March 1, 2017, and must begin collecting by July 1, 2017. Since then, the rule was challenged by two remote retailers, and on April 10, 2017, the parties agreed to an injunction of the rule. In addition, on May 10, 2017, the Tennessee General Assembly passed HB0261, which prohibits the enforcement of Rule 129 until such rule is approved by the General Assembly. The bill has been submitted to Governor Haslam, and he is expected to sign it.

Massachusetts: On April 3, 2017, the Department of Revenue issued Directive 17-1, which establishes an economic sales tax nexus rule for internet vendors that have more than $500,000 in Massachusetts sales and made sales for delivery into Massachusetts in at least 100 transactions. For the period July 1, 2017 to Dec. 31, 2017, the measurement period will be the 12-month period ending June 30, 2017, and for later periods, the measurement period will be the prior calendar year. This standard applies solely to out-of-state Internet vendors and not to other out-of-state vendors.

Indiana: On April 28, 2017, Indiana Governor Holcomb signed HB 1129, which requires remote sellers to collect and remit Indiana sales tax if they have, in the prior or current calendar year, either gross revenue over $100,000 from or 200 or more separate transactions of sales of tangible personal property, products transferred electronically, or services into the state. The law is effective on July 1, 2017.

North Dakota: On April 10, 2017, HB 2298 was signed into law by Governor Burgum. The bill requires sellers without physical presence in North Dakota to begin collecting and remitting North Dakota sales and use tax if they have, in the prior or current calendar year, either gross revenue over $100,000 from or 200 or more separate transactions of sales of tangible personal property and other taxable items delivered into the state. The law become effective on the date that the United States Supreme Court overturns the physical presence requirement or otherwise confirms that a state may constitutionally impose sales/use tax under the circumstances set forth in the bill.

Wyoming: House Bill 19 was signed by Governor Mead on March 1, 2017. The bill requires sellers without physical presence in Wyoming to begin collecting and remitting Wyoming sales and use tax if they have, in the prior or current calendar year, either gross revenue over $100,000 from or 200 or more separate transactions of sales of tangible personal property, admissions or services delivered into the state. The bill is effective on July 1, 2017.

In addition to the bills passed and rules adopted in 2017, Vermont passed HB 873 last year (May 25, 2016), with thresholds similar to those found in South Dakota, Indiana, North Dakota and Wyoming. The Vermont bill is effective on the later of July 1, 2017 or the first day of the calendar quarter following a decision of the U.S. Supreme Court or the enactment of federal legislation abolishing the physical presence requirement. Finally, several states introduced, but did not pass, similar legislation during their 2017 legislative sessions, including Georgia.

Given the fact that the U.S. Supreme Court or federal legislation has not overturned the physical presence nexus requirement for sales and use taxes, all of the bills, regulations and policy statements described above are in direct contravention of existing law under the U.S. Supreme Court’s Quill decision. While some of these rules are not yet effective, not being enforced or subject to a current injunction, others are soon to be effective as early as July 1, 2017. Remote sellers must review their sales data to determine if they meet any of these economic nexus requirements, and if so, whether they will begin collecting and remitting. Those that fail to do so run the risk of having exposure if at some point in the future if the physical presence nexus requirement is eliminated.

Aprio’s SALT team works regularly with companies to help address nexus issues and can assist your business with determining its nexus risks in order to minimize sales tax exposures. We constantly monitor these and other important state tax issues, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

This article was featured in the May 2017 SALT Newsletter. You can view the full newsletter here.

[1] See articles from our May 2015, October 2015 and March 2016 SALT Newsletters. The physical presence nexus requirement for sales/use tax was upheld by the United States Supreme Court in Quill v. North Dakota, 504 U.S. 298 (1992).

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.

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