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Wayfair and Nexus: The Aftermath, Part 6 – No More Cookies and Thresholds

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Wayfair and Nexus: The Aftermath, Part 6 – No More Cookies and Thresholds

Kansas’ Governor vetoed the state’s proposed Wayfair sales tax economic nexus legislation, but then the Kansas Department of Revenue issued an administrative announcement that the state would begin to enforce economic nexus against remote sellers without establishing any sales or transaction threshold.


Since the Wayfair decision more than a year ago, Aprio’s SALT Newsletter has covered the flurry of state activity in response to that Supreme Court decision, including what types of sales are included in the threshold, the variations in the measurement period, and compliance procedures once the threshold is met.

Recently, Ohio and Massachusetts have passed legislation to replace “cookie” sales tax nexus rules, which predated the Wayfair decision, with economic nexus rules consistent with Wayfair.  Additionally, Kansas, one of the few remaining states without a sales tax economic nexus rule issued guidance to remote sellers.

No More Cookies in Ohio and Massachusetts

Before the Wayfair decision, both Ohio and Massachusetts required remote sellers to collect and remit sales tax if the seller, in part, sold more than $500,000 of sales from transactions completed over the Internet.  Prior to Wayfair, these states asserted that the cookies placed by the internet retailer on its customers’ computers in the state satisfied the physical presence nexus requirement.

Ohio (HB166) and Massachusetts (HB4000) have now passed legislation to replace these cookie nexus rules with sales tax economic nexus rules consistent with the Wayfair decision.  Instead of $500,000 of sales required with the cookie presence, sales tax economic nexus is now established in each state, in part, by exceeding $100,000 of sales which is consistent with the majority of state sales tax economic nexus rules.  Ohio’s rule would also impose economic nexus on a remote seller with 200 or more separate Ohio transactions; Massachusetts does not have a transaction threshold.  Both bills also establish sales and use tax compliance obligations for certain marketplace facilitators.

Kansas Issues Remote Seller Guidance Without a Revenue or Transaction Threshold

In early 2019 the Kansas legislature passed a bill which would have enacted a Wayfair sales tax economic nexus rule like many other states; however, Governor Laura Kelly vetoed the bill.  Since then, Kansas has remained one of the few states without a proposed or enacted sales tax economic nexus rule.

On Aug. 1, 2019, the Kansas Department of Revenue issued Notice 19-04 to provide guidance for remote seller’s sales tax obligations by announcing its policy to enforce sales tax economic nexus effective Oct. 1, 2019.  However, unlike all other states, Kansas provides that remote sellers must register and begin collecting and remitting Kansas sales/use tax without setting any quantitative threshold (i.e., sales and/or transaction) for determining nexus for the remote seller.

Kansas refers to a state statute that defines a “retailer doing business in the state” to mean “any retailer who has any other contact with this state that would allow this state to require the retailer to collect and remit tax under the provisions of the constitution and laws of the United States.”[1]  Accordingly, it is not unconstitutional for Kansas to rely upon that provision and the Wayfair decision to impose economic nexus on remote sellers without the state legislature enacting a specific law imposing economic nexus.

The concern with this announcement is that without setting any thresholds, it raises the question of which remote sellers are subject to this sales tax collection and remittance obligation.  It would seem permissible for Kansas to enforce its economic sales tax policy on remote sellers that at least meet the specific thresholds addressed by the Supreme Court in Wayfair (i.e., $100,000 of sales or 200 transactions).

However, what about remote sellers that fall below these thresholds?  Unfortunately, the Wayfair Court did not set minimum thresholds that would meet constitutional standards, it only ruled that the thresholds set in South Dakota’s law were permissible.  Therefore, the Kansas notice opens up a potential facts and circumstances type of analysis on a case-by-case basis.  This uncertainty was one of the main concerns raised by businesses with regard to the physical presence nexus rules – how much physical presence is enough?  One day in the state?  Two?  Three?  Any economic nexus rule without a threshold provides a similar challenge.  If the rule does not clearly state $100,000 of sales creates nexus, then how much is enough?  Is it $50,000?  $20,000?  $5,000?  If Kansas attempts to enforce economic nexus on a remote seller who does not meet the transaction thresholds that were the subject of the Wayfair decision, then that would potentially open the door to litigation.

Businesses must continue to monitor guidance from the states as well as their own sales and transaction data to determine if they meet each state’s economic nexus rules.  Aprio’s SALT team continues to monitor these developments and can assist companies with addressing their sales and use tax compliance obligations.  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.

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Contact Jess Johannesen, SALT manager, at jess.johannesen@aprio.com or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at jeff.glickman@aprio.com for more information.

This article was featured in the August 2019 SALT Newsletter.

[1] Kan. Stat. Ann. § 79-3702(h)(1)(F).

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