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11 minute read
Brian Sengson from US based DFK member firm Bennett Thrasher provides an update.
It has been nearly three years since the landmark decision of South Dakota v. Wayfair, Inc. (Wayfair), which upheld states’ adoption of sales tax economic nexus laws.
Notably, the Court partially hinged its ruling on South Dakota’s small seller safe harbor thresholds, which limited the state’s ability to assert sales tax nexus for remote sellers that had more than $100,000 in South Dakota-sourced receipts or 200 or more transactions with South Dakota-based customers.
Since the Wayfair decision, 45 states have adopted sales tax economic nexus rules in some form, all with varying effective dates. Accordingly, all states that impose a sales tax have now adopted, or will soon adopt, an economic nexus law. It is important to note, particularly when evaluating historical sales tax filing requirements, that several states have adjusted their small seller safe harbor thresholds after initially enacting their economic nexus laws. For example, Georgia’s economic nexus law was effective January 1, 2019 with a small seller safe harbor threshold of $250,000 in retail sales of tangible personal property and less than 200 transactions. However, Georgia lowered the retail sales threshold to $100,000, effective January 1, 2020.
In any case, while states have broadly adopted economic sales tax nexus laws, the results are varying year-to-year and require a more nuanced assessment to properly identify when a taxpayer has effectively triggered a filing requirement.
As a reminder, state’s economic nexus laws generally do not differentiate between business types or revenue models. Rather, all businesses that meet a state’s definition of a remote or out-of-state seller are subject to that state’s economic nexus laws.
For example, Georgia law defines a remote seller as “any person who makes a sale of tangible personal property from outside of Georgia that is to be delivered electronically or physically to a location within Georgia.” As such, while the initial misconception was that the Wayfair decision would only impact e-commerce companies, Georgia’s economic nexus law, like most others, impose sales tax compliance requirements for many industries.
Amid their adoption of economic nexus laws, one area of uncertainty has arisen for e-commerce businesses that sell third-party goods and services on their platform.
Generally, sales taxes are required to be collected by the retailer (in this case, the third-party sellers) from their customers. However, several states opted to find the more convenient solution by enacting legislation requiring marketplace facilitators to collect and remit sales taxes on behalf of third-party sellers using their online marketplace or forum. As a result, states can now collect the tax from one taxpayer rather than from dozens to hundreds of smaller taxpayers.
It is worth noting that states’ small seller safe harbor rules for economic nexus generally apply to the marketplace facilitator laws.
Key legislative updates
As states have expanded their economic nexus provisions in response to Wayfair, we anticipate a similar expansion for states’ taxability classifications for various products and services particularly given states’ budgetary shortfalls amidst COVID-19. For example, Maryland began subjecting sales of digital products and software-as-a-service (“SaaS”) to sales tax effective March 14, 2021.
Whilst all the DFK firms are independent and trade under their own brand, the partners in all of the member firms share an enthusiasm and dedication to providing personal and timely services through experienced advisers with a commitment to achieving consistent and ethical standards.
Where DFK member firms work together on cross border assignments we operate as one team. A powerful and important feature which will save you time, money and allow resources to be best utilised.
Bennett Thrasher’s state and local tax team is uniquely positioned to help your business:
Additionally, our State and Local Tax team can identify and resolve any prior period sales tax exposure issues, prepare your business for a future sale and assist with many other state and local sales or income tax matters.
For more information on how Bennett Thrasher can help with sales taxes, please contact Brian Sengson at 770.396.2200.