It’s been over a year since the United States Supreme Court’s ruling in the South Dakota v. Wayfair case broadened states’ sales tax collection authority to include ‘remote sellers’ – businesses without an in-state physical presence.
As international tax treaties do not cover sales and use tax obligations, non-US companies can be held to the same standards that apply to US domestic organisations.
States have been incredibly active in codifying this broader authority during the last year by enacting receipts-based and transaction-based nexus thresholds, whereby the seller has an obligation to collect and remit sales tax when sales exceed USD100,000 or there are more than 200 transactions.
All but two of the 46 states with a retail sales tax have imposed an economic nexus standard in the year since Wayfair. States have already been sending notices to remote sellers enforcing these new rules and are not slowing enforcement nor offering any grace periods. So, the time to act is now.
Considerations before registering with a state
While sellers can typically look at a state’s threshold and determine if they have economic nexus for sales tax purposes, that should just be the first step when deciding how to begin compliance.
Businesses should also consider the following related issues so they can evaluate and quantify any prior exposure before registering to collect sales tax in a new state:
- Did the seller previously have physical presence in the state?
- Does the state impose other non income-based taxes that the seller may have prior period exposure to, such as the Washington Business and Occupation tax?
- Does the state already have economic nexus thresholds for income tax purposes?
- Has the business attended a trade show in the state?
Marketplace provider laws
Marketplace provider collection is another major effect of Wayfair that states have quickly pursued. These laws require marketplace providers to collect sales tax on behalf of sellers who use their marketplace to facilitate sales.
They were aimed at large marketplaces like Amazon, eBay, and Etsy, who are not necessarily the owners of the products sold on their websites, and may instead merely provide the marketplace and web platform through which a retailer sells its product.
Marketplace provider laws generally relieve retailers of the liability to collect sales tax on sales made through the marketplace by shifting the primary collection obligation to the marketplace operator. However, for any sales made by a retailer outside a third-party marketplace – via the retailer’s own website, for example, the sales tax collection liability remains with the retailer.
Don’t ignore Wayfair
The US transaction-based sales tax system may be confusing for many foreign-based companies and with individual states imposing their own state sales tax, it can be very complex to operate in the US. Butthe Wayfair decision can’t be ignored, as states are pushing forward sales tax collection activity with little to no grace periods.
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Date: October 2019