Things to Know When Making Online Sales Outside of Idaho
A recent Supreme Court ruling, South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018), held by a 5-4 majority that states may charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state. This is a significant and troubling change to the landscape of sales tax law.
Before this ruling:
Businesses could avoid nexus (possible tax liability and a sales tax filing requirement) for sales and income taxes for any states in which the business did not have a physical presence. This doctrine allowed rapid growth of Internet-based sales for businesses without adding additional reporting and filing requirements.
After this ruling:
South Dakota’s new sales tax law has been upheld. This law requires that all retailers are to collect and remit sales tax, even if they have no physical presence in the state, if they have over $100,000 of South Dakota sales or more than 200 transactions in the state.
Wyoming and New Jersey have a sales tax law with identical requirements to South Dakota: Retailers must pay sales tax if they have $100,000 in sales in the state or more than 200 transactions in the state.
Oklahoma, Pennsylvania, and Washington have adopted sales tax laws requiring vendors to either report sales to buyers or collect and remit sales taxes. These laws will apply to remote sellers with a mere $10,000 in sales in the state.
A number of states, including Colorado, Connecticut, Hawaii, Kentucky, North Dakota, and Wisconsin appear to be preparing to implement sales tax laws that will be enforceable on remote sellers.
The above list is not comprehensive and the number of states with sales tax laws affecting online sales will continue to increase. Each month, more states announce new sales tax laws and reporting thresholds.
Not every state is implementing the same threshold, so sellers can’t use a “de minimis” rule across all states. Sellers need to know sales tax rules for each state in which they do business or make online sales.
What Can a Seller Do?
Here are a few options:
- The ‘Overstock Approach’ (so-called because it’s how Overstock is handling the problem). Register for sales tax in every state that you have sales in and collect and remit taxes in each jurisdiction in which you make any sales.
- Research sales tax rules in every state in which you make sales. Consider thresholds and whether you may exceed them. Register in those states where your business is over the threshold for local sales tax laws.
- You may want to engage a company with expertise in the area of sales taxes to keep you up to date and make sure you are aware if any state you’re doing business in makes a change.
Contact Lonny Hytrek and his team of tax professionals if you have any questions about the sales tax law changes and how they may affect you.