Substantial Sales Tax Nexus – Welcome to the Post-Wayfair World
By Mary Jo Dolson, Partner, Tax & Business Services
It’s been more than a year since the U.S. Supreme court ruled in South Dakota v. Wayfair that its physical presence nexus standard in Quill Corp. v. North Dakota was “unsound and incorrect.” Since then nearly every state with a sales tax has implemented economic nexus legislation or guidance for remote sellers.
In recent weeks, more states and businesses have come to terms with the Wayfair decision’s effect on sales tax collection. The following summarizes recent changes in Ohio and other states with respect to substantial sales tax nexus.
How has Wayfair Impacted Ohio Sales Tax Collection?
Statutory changes from the recently passed biennial budget bill that took effect August 1, 2019 contain sales tax substantial nexus and market place facilitator provisions. Ohio has adopted a standard similar to the Wayfair standard. That means a seller with greater than $100,000 of gross receipts or at least 200 transactions in the current or previous calendar year has substantial nexus. The seller is required to register to obtain a seller’s use tax license, collect, file returns and remit tax. This was a change in Ohio’s previous economic nexus standard of $500,000 in sales.
Ohio also now requires marketplace facilitators to collect, file and remit tax for taxable retail sales made into Ohio on behalf of marketplace sellers on its marketplace. A marketplace facilitator must look to its own sales plus sales facilitated on behalf of the sellers on its marketplace to determine substantial nexus. The same thresholds apply: greater than $100,000 gross receipts or 200 transactions. Some examples of marketplace facilitators are Amazon, Etsy and E-Bay
Additionally, marketplace facilitators are required to source the facilitated sales by customer destination. What this means is the marketplace facilitator must determine the sales tax rate to charge on the transaction based on where the goods are being shipped.
My state doesn’t even have a sales tax; why should I have to collect your tax?
Only a handful of states do not have a sales tax, including New Hampshire. Lawmakers in that state feel it is unfair for in-state businesses to have to collect another state’s sales tax when New Hampshire itself does not impose such a tax. Governor Chris Sununu signed a bill intended to prevent other states from imposing sales and use tax collection obligations on its businesses without written notice to the state’s attorney general first.
Other no-sales-tax-states are considering similar legislation as well.
Additionally, legislation was introduced recently in Congress to help protect small business remote sellers from collection requirements in states where the business lacks a physical presence. A small business remote seller is a remote seller with annual gross receipts of less than $10 million. The bill would also prevent any retroactive taxation in light of the Wayfair decision.
Lowering the standard
Unfortunately Wayfair didn’t set the bar. And even if it did, Kansas just lowered it…all the way. In a Department of Revenue notice (Notice 19-04), Kansas explains that anyone selling into the state, whether the presence is physical or economic, is required to collect and remit the tax. This could potentially place a huge burden on interstate commerce.
The Tax Planning and Preparation professionals at Marcum LLP will continue to follow in this evolving topic and keep you apprised of developments as they occur. If you have questions regarding sales and use tax issues, please contact Mary Jo Dolson, CPA, at 813-397-4850 or email Mary Jo.