Posted by Avalara on July 05, 2018

Future of Internet Sales Tax

Comments (0)

On June 21st, 2018 the US Supreme Court ruled in a landmark case (South Dakota v. Wayfair) that will affect the future of internet sales tax collection. This ruling opens the door for states to require online merchants to remit sales tax, regardless of whether they have a physical presence in that state. As an ecommerce merchant, what does this mean for your business?

In this guest blog post our sales tax partner, Avalara, gives you the answers to eleven FAQs.

1. What was the South Dakota v. Wayfair, Inc. case all about?

The state of South Dakota petitioned the Supreme Court to overturn a long-standing rule that a company must have “physical presence” inside of a state before the state has the legal authority to require it to collect and remit sales tax. South Dakota was successful in convincing the court to expand its authority to impose tax obligations on remote sellers via its economic nexus rule.

2. What does “economic nexus” mean?

Economic nexus is a tax collection obligation imposed on companies that have a certain level of economic activity within a state. Unlike nexus that’s based on physical presence, economic nexus is based entirely on sales revenue, transaction volume, or a combination of both. Like many sales tax laws, economic nexus criteria vary by state, but all aim to level the playing field between non-collecting out-of-state sellers and brick-and-mortar businesses.

3. What triggers economic nexus in South Dakota? What are the sales/transaction thresholds requirements?

To trigger economic nexus in South Dakota, an out-of-state seller must meet either of the following criteria in the previous or current calendar year: (1) the seller’s gross revenue from the sale of tangible personal property, any product transferred electronically, or services delivered into South Dakota exceeds $100,000; or (2) The seller sold tangible personal property, any product transferred electronically, or services for delivery into South Dakota in 200 or more separate transactions. The state believes a company with $100,000 in South Dakota sales is the equivalent to $30 million in sales nationwide. However, it’s important to look at the law’s exact requirements and your business transactions in South Dakota to see if/how this could affect you. 

4. What types of companies will be impacted by South Dakota’s economic nexus law?

South Dakota’s economic nexus law applies to remote sellers (online and off-line) that are not currently registered with the state and meet the threshold requirements, which are annual sales in excess of $100,000 or 200 sales into the state.

5. Outside of physical presence, what other nexus-related laws should remote sellers keep an eye on?

South Dakota’s law applies to taxable sales made to consumers.

  • It does not change what is tax exempt
  • It will apply to service providers (not just tangible personal property) as South Dakota taxes lots of services
  • It will apply to manufacturers and wholesalers who sell direct to consumers

6. If a company is already registered in South Dakota, does this court decision apply to them?

This ruling should not affect any company already registered and collecting in South Dakota

7. How soon will South Dakota’s law go into effect? When do companies need to register?

TBD. South Dakota has not published or explicitly stated when their law will go into effect.

8. What about other states? Are any imposing the similar laws? If so, when do they go in effect?

There are several other states with economic nexus rules similar to South Dakota. These include: AL, CT, GA, HI, IA, IL, IN, KY, LA, MA, ME, MS, ND, OH, PA, RI, TN, VT, WA, and WY. Each has different statutory start dates and sales/transactions requirements that trigger nexus.

9. Does physical presence still trigger nexus?

Yes. The SCOTUS ruling adds economic nexus to the existing list of activities that create nexus and does not impact any other state nexus laws. Nexus is still enforced when companies have substantial physical presence in another state. For more on nexus, go here.

10. How should remote sellers go about determining whether they have nexus in South Dakota and other states?

At Avalara we recommend that you work directly with a State and Local Tax (SALT) CPA advisor who can counsel you on nexus-related requirements and laws. If you need such a resource we have an extensive partner referral program with tax experts and SALT CPAs who would be happy to work with you and provide nexus studies. Here is a list of our CPA partners. You can also work directly with Avalara’s Tax Advisory Services for a nexus study or other related tax compliance engagements by calling us at 877-759-6520.

11. Where can I go for more info on South Dakota v. Wayfair, Inc. and background on economic nexus?

We have a resource page on Avalara.com that covers South Dakota v. Wayfair, Inc. extensively. It has a detailed FAQ, overviews, and links to other resources by tax policy experts, media reports, and our blog.

Note: This guide does not offer a substitute for professional legal tax advice. We recommend that you work directly with a SALT CPA tax advisor who can counsel you on nexus related requirements and laws.

Next Steps

Avalara and BV Commerce work together to prepare BV Commerce merchants for future changes and help them comply with current laws. BV Commerce has a seamless integration with Avalara's AvaTax service to calculate the correct sales tax for each of your customer transactions and to streamline compliance. Watch the short 2-minute video below to learn how.

Categories:

Add comment

biuquote
  • Comment
  • Preview
Loading

©2018 Develisys. All rights reserved.
  • Toll-free  888-665-8637
  • International  +1 717-220-0012