Sales and Use Tax Nexus: States Recent Updates and Challenges to Quill
Multiple states have recently passed laws or announced directives that imply that sales tax nexus can be created in a state without a physical presence. The following highlights some recent situations.
The Massachusetts Department of Revenue, in Directive 17-1, announced that it will impose an economic nexus standard for Sales & Use Tax, starting July 1, 2017. Out-of-state internet vendors will be considered to have nexus during “each calendar year beginning with 2018, if during the preceding calendar year it had in excess of $500,000 in Massachusetts sales and made sales for delivery into Massachusetts in 100 or more transactions.”
On April 10, the Tennessee Department of Revenue agreed to suspend the enforcement of its economic nexus standard for Tennessee sales tax. The Department will not enforce the regulation while the Tennessee Chancery Court hears the arguments on its constitutionality.
The state passed a new nexus standard where an entity that has $100,000 delivered into the state, or has made 200 or more separate taxable sales of tangible personal property or other taxable items for delivery into the state, has nexus for sales tax. However, the law isn’t effective until the U.S. Supreme Court overturns its decision in Quill v. North Dakota, or issues an opinion confirming that a state may constitutionally impose sales and use tax collection responsibilities on an out-of-state seller that does not have a physical presence in the state.
On March 29, 2016, South Dakota legislation was passed that will impose sales tax collection requirements on out-of-state retailers that do not have a physical presence in South Dakota. The standard is the same as in North Dakota, where an entity that has $100,000 delivered into the state, or has made 200 or more separate taxable sales of tangible personal property or other taxable items for delivery into the state, has nexus for sales tax. The legislation has a provision allowing a delay in collections if and when the law is challenged in the courts.
Nebraska’s Remote Seller Sales Tax Collection Act would create nexus for an entity that has $100,000 delivered into the state or has made 200 or more separate taxable sales. (The bill has not passed yet).
There are similar situations arising in Colorado, Louisiana, and Vermont. The new rules don’t follow the physical presence standard of Quill. In Quill Corp. v. North Dakota, the United States Supreme Court ruled that a business must have a physical presence in a state for that state to impose and collect sales taxes. Since the U.S. Congress has not provided any action for sales tax collection, the states have started on their own. States are aware they are creating laws directly in the face of standing U.S. Supreme Court precedent and are hoping the court will revisit the decision. The new laws are quickly being contested in the courts by taxpayers. The number of states passing or attempting to pass similar laws seems to be increasing at a fast pace as states don’t want to be left behind when finding a new way to bring tax revenue.
Please contact your dedicated Marcum professional to address any questions regarding these laws or any other tax matter.