On June 21, 2018, the US Supreme Court overturned a long-standing ruling that prevented states from collecting sales tax from sellers unless they had a physical presence in their state.
Now, any state can require an online seller to collect and pay sales tax, according to that state’s rules.
There are two vital steps to coming into compliance with your own business.
- Determine where you are required to collect and pay sales tax, and
- Determine what is subject to tax in that state.
Here’s a little background.
The case itself involved South Dakota and its sales tax collection law. Under that SD law, remote sellers with more than $100K in sales to SD customers or 200 or more sales to SD customers in a year are required to collect sales tax. SD is also a member of the Streamlined Sales and Use Tax agreement (SSUTA), which is an agreement among 24 states to provide simplified and uniform methods to collect sales tax.
The Court decision wasn’t completely definitive in all of the answers that people who sell online will need. Here’s what we know and don’t know:
- Physical presence is no longer required before a state can force a remote seller to collect its tax.
- “Substantial nexus” is required, however. The decision did not define substantial nexus, but did say SD’s threshold of $100K in sales or 200 transactions was substantial.
- SSUTA would not be considered an undue burden, according to the US Supreme Court.
- The Court was silent on whether states could seek retroactive payments.
Eleven states (Alabama, Colorado, Hawaii, Kentucky, Louisiana, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Vermont and Washington) have law now that requires remote sellers that do not collect tax to file an annual report with the state that discloses the names, addresses and other information pertaining to the remote seller’s customers in the state.
Remote sellers that do not collect tax must also provide an annual 1099-type notice to customers in these states
The states without statutes requiring collection by remote sellers would need to enact new laws before collection could begin. Since most state legislatures have concluded their 2018 sessions, it is unlikely that these states will enact new laws prior to 2019.
Here is a handy chart that shows where each state is right now regarding sales tax law for remote sellers: https://nrf.com/sites/default/files/Documents/SalesTax-1807-2801030%20Wayfair%20%288-3-18%29.pdf
There are 24 the 24 states that are members of the SSUTA (Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming).
The SSUTA states will pay for the software remote sellers need to collect and remit tax in their states. In addition, they have contracted with several Certified Service Providers (CSP) who will provide tax collection services for remote sellers to collect in SSUTA member states, at no cost to the remote seller. Moreover, under the SSUTA, remote sellers are relieved of liability for any tax collection errors if they utilize a CSP. The CSPs also handle most tax audits from the member states.
Remote sellers may engage CSPs and other third-party tax collection companies to provide tax collection services in the states that are not members of the SSTA.
However, if you do it yourself, you have to pay the costs associated and if there is a mistake, you have liability.