Wayfair Update: Changing the State and Local Tax Landscapes
The United States Supreme Court decided on June 21, 2018, South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018), wherein a 5-4 decision, the court found in favor of the State of South Dakota by expanding the definition of in-state nexus to include a “virtual presence.” To this end, this landmark decision has created a profound impact on state and local sales tax administration and, in turn, the states’ authority to require sales and use tax registration and collection for out-of-state companies that do not have any physical presence within a specific jurisdiction.
Prior to the decision, the following 11 states had enacted legislation which expanded their respective definitions of nexus: Hawaii, Kentucky, Maine, Massachusetts, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, Tennessee, and Vermont. Apart from Tennessee, which is currently stayed pending litigation, some of these state rules were enforceable upon each State’s enactment – Massachusetts, Ohio, Pennsylvania, and Rhode Island. New York recently issued an administrative pronouncement indicating their rule became enforceable as of June 21, 2018, upon the delivery of the Wayfair decision, while four more states – Hawaii, Maine, Oklahoma, and Vermont – became enforceable on July 1, 2018. Kentucky was originally slated to begin on July 1, 2018; however, it decided to extend enforcement to begin on Oct. 1, 2018.
Since the Supreme Court’s decision, many states, including the District of Columbia, have enacted legislation similar to South Dakota’s rule that requires an out-of-state or remote seller to register and begin collecting sales/use tax if their gross sales in the current or preceding year exceeds $100,000 or the out-of-state or remote seller has 200+ sales transactions delivered into the State during the current or preceding year. There are 45 states and the District of Columbia that impose a state-wide sales/use tax. Of these 46 jurisdictions, 36 states have begun enforcing their rules with California and Texas to begin on April 1, 2019, and Oct. 1, 2019, respectively. There are currently six more states which, have introduced similar legislation – Arizona, Arkansas, Kansas, Missouri, New Mexico, and Virginia. The pending legislation in these states is likely to pass and become enforceable on or by Jan. 1, 2020. Currently, neither Florida nor Idaho have any pending legislation. A listing of all current state thresholds can be found here.
In addition to the new economic nexus thresholds, there are other rules with regards to electronic cookies, election and notice reporting requirements, as well as sales by marketplace facilitators of which out-of-state remote and internet sellers need to be cognizant.
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The Wayfair Decision – An Update