States Seeking to Fill their Coffers Quickly Adopt New Economic Nexus Laws by Michael Hirsch, JD, LLM
Posted on November 08, 2018 by Michael Hirsch,
Several U.S. states have officially adopted new economic nexus laws in response to the Supreme Court’s June ruling in South Dakota v. Wayfair, which eliminated the physical presence test for determining when states could impose sales tax collection obligations on remote and online sellers located outside their borders.
Effective Oct. 1, 2018, the following 10 states now require online and out-of-state retailers to collect and remit sales tax when their sales of goods or services into those jurisdictions exceed specific sales volume thresholds: Alabama, Illinois, Indiana, Kentucky, Maryland, Michigan, Minnesota, North Dakota, Washington and Wisconsin. Other states will roll out their own post-Wayfair economic nexus sales tax laws over the next 12 months if they have not done so already.
All businesses that conduct sales across state lines, including, but not limited to, online retailers, should review their annual sales histories on a state-by-state basis to determine if the dollar volume and number of transactions they complete in each state exceed the new economic nexus thresholds. Complicating this process is the fact that the annual sales caps that would require sellers to collect tax vary from one state to the next. For example, the lowest transaction threshold is $10,000 per year for out-of-state retail sales into Minnesota, whereas the highest gross receipts/ transaction volume threshold of $100,000 / 200 separate transactions is in effect in states including Illinois, Indiana and South Dakota.
Should retailers identify that they do in fact have sales tax collection obligations in a number of states, they must first register separately with the Department of Revenue in each state and receive sales tax licenses in order to collect, file and pay sales tax in those jurisdictions. It is recommended that taxpayers work with their advisors and accountants to guide them through this potentially complex and time-consuming process. As more states adopt the new sales thresholds for establishing economic nexus, businesses that can get a head start will be better prepared to meet the challenge of compliance in the long run.
About the Author: Michael Hirsch, JD, LLM, is a senior manager of Tax Services with Berkowitz Pollack Brant’s state and local tax (SALT) practice, where he helps individual and business to meet their corporate, state and local tax reporting requirements. He can be reached at the CPA firm’s Fort Lauderdale, Fla., office at (954) 712-7000, or via email at firstname.lastname@example.org.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.