Sales Tax Nexus – Fallout from the Wayfair Decision

March 12, 2020 by Staff
State and Local Taxation

In June 2018 the US Supreme Court transformed the landscape for businesses collecting sales tax[i].   Our October 8, 2018 blog, “Economic Nexus and How it Might Affect You”, explained the impact of this decision.  A year and half later, apart from Florida and Missouri, all states with a sales tax[ii] have enacted laws or issued guidance similar to the South Dakota statute considered in the Wayfair decision.   We updated our chart to reflect the current status.

However, states are not consistent.   These variances include:

  • How much is the threshold? Most states have a $100,000 threshold in a twelve-month period before requiring a seller to collect sales tax, although several states are higher.  Kansas will apply a zero threshold, but there is some question whether the zero threshold is enforceable.
  • Which twelve months to measure? Some states use the previous calendar year and some states use the previous (rolling) twelve months. Rolling 12-month states require sellers to review their sales at the end of every month.
  • Which Sales Count? Some states use Gross Sales to determine whether a seller has met the threshold, others use Retail Sales.   
    1. Sales tax is imposed on consumers unless there is an exemption for items to be resold. For example, inventory purchases are not subject to sales tax.  Retail sales are any sale that is not a sale for resale.  Retail sales may still be exempt based on the type of product sold (typically food and clothing) or the status of the buyer (typically charities and governments). 
    2. Most states have also imposed collection responsibilities on “Marketplace Providers” such as eBay and Amazon’s third-party sales. States often exclude sales made on these platforms in determining the thresholds.
  • Do the number of transactions still count? There is a trend to eliminate the threshold based on the number of transactions.  This standard creates a burden for sellers with high quantity but very low-priced items, since they can easily exceed the number of transactions without reaching the dollar threshold.

We recommend that all sellers:

  • Collect and retain exemption certificates for all states. Exemption certificates are given to the seller by the buyer as proof that the buyer is entitled to buy an item tax-free.  The most common type is a sale for resale exemption certificate.  Exemption certificates should be collected and retained whenever there are sales exempt from sales tax, even if a business is currently below the threshold. These should typically be collected with the first order by a new customer.  Otherwise, a business may suddenly have to collect sales tax and have to rush to collect exemption certificates. 
  • Monitor sale thresholds occasionally throughout the year for the rolling 12-month states.
  • File zero returns in states with gross sales thresholds, even if all sales are exempt, and no tax is collected.

[i] Some state statutes refer to a seller’s responsibility to collect a consumer’s use tax.  This article uses sales to mean any tax the seller must collect from a buyer and a use tax is self-assessed by the user.

[ii] New Hampshire, Oregon, Montana, Alaska, and Delaware do not impose a state sales tax.  Alaska local jurisdiction often impose a sales tax.

Economic Nexus Summary 1-13-2020