Multistate: More Responses to South Dakota v. Wayfair

It’s October 1. That means today is the day that sellers without a physical presence in the state should begin collecting tax on sales into the state if they meet the state’s economic nexus threshold in these 11 states:  Alabama, Illinois, Indiana, Kentucky, Maryland, Michigan, Minnesota, New Jersey, North Dakota, Washington State, and Wisconsin.

In other Wayfair-related happenings, on September 17, 2018, the Massachusetts Department of Revenue issued Technical Information Release 18-8, titled “Tax Jurisdiction Over Internet Vendors Prior to and Subsequent to Wayfair, Inc. v South Dakota.” In the TIR, the Department reminded vendors that it has had a regulation in place since October 1, 2017, that generally requires  an Internet vendor with a principal place of business located outside the state and not otherwise subject to collection requirements to register, collect and remit Massachusetts sales or use tax if, during the prior 12 month period, the vendor had in excess of $500,000 in Massachusetts sales from transactions completed over the Internet and made sales resulting in a delivery into the state in 100 or more transactions, provided that the seller has at least one of the following: (a) a property interest in or the use of software located in the state (apps or cookies); (b) a contract or relationship with a content distribution network, as defined; or (c) a contract or relationship with a marketplace facilitator or delivery company to provide such services as payment processing, fulfillment and the like. The Department further reminded taxpayers that it is enforcing the regulation for all tax periods after the regulation’s effective date (October 1, 2017) both prior to and subsequent to Wayfair.

On September 18, 2018, the South Carolina Department of Revenue issued Revenue Ruling #18-14, in which the Department explains that remote sellers (including marketplace facilitators) with gross revenue exceeding $100,000, from the sale of tangible personal property, products transferred electronically, and services delivered into South Carolina, in the previous or current calendar year have economic nexus with South Carolina. Recall the Department, in mid-August, released three draft revenue rulings, applicable to remote sellers, marketplaces, and marketplace sellers, respectively, in which the proposed thresholds were $250,000 of gross proceeds from the sale of tangible personal property. Accordingly, the final ruling reduces the sales threshold, aligning it with the South Dakota law, while expanding the computation to include sales of goods delivered electronically and services. Remote sellers that establish economic nexus with South Carolina on or after October 1, 2018, are responsible for remitting the sales and use tax for all taxable sales made into South Carolina beginning the first day of the second calendar month after economic nexus is established. The Revenue Ruling provides for prospective application only, with an enforcement date of November 1, 2018. On September 20, 2018, the Department issued Revenue Ruling # 18-15, explaining that once a retailer has established nexus with the state for sales and use tax purposes, it also must remit local sales and use taxes for every local jurisdiction in which the Department administers such tax. Accordingly, the retailer must remit local sales and use taxes for any local jurisdiction into which deliveries are made by, or on behalf of, the retailer. This is a change in the Department’s prior position and applies to deliveries made on or after November 1, 2018.

There was some Wayfair-related activity on Capitol Hill when, on September 13, 2018, Representative Jim Sensenbrenner (R-Wis.) introduced the “Online Sales Simplicity and Small Business Relief Act of 2018.” This bill, if enacted, would prohibit states from imposing a sales tax collection duty on remote sellers for any sale that occurred prior to June 21, 2018; provide that states may only impose a sales tax collection duty on remote sellers for sales that occur after January 1, 2019; and establish a small business remote seller exception, defined to mean a remote seller with gross annual receipts in the United States during the preceding calendar year that is not more than $10 million. The bill would further define a remote seller as a seller that has less than 15 days of physical presence in a calendar year; it also sets forth a sense of Congress that states should establish a multistate compact to provide a simplified sales tax administration system for remote sellers.

On September 27, 2018, the New Jersey Assembly passed Assembly Bill A-4496, which amends the definition of “seller” to include a seller who receives gross revenue of more than $100,000 or has 200 or more separate transactions, from the sale of tangible personal property, specified digital products, or services into the state, within the calendar year or the prior calendar year. The definition of “seller” also includes a marketplace facilitator, defined to mean a person, including any affiliate of the person, who directly or indirectly facilitates a retail sale of tangible personal property, specified digital products, or taxable services on behalf of a marketplace seller. “Marketplace seller” is defined to mean a seller that makes retail sales through any physical or electronic marketplace owned, operated, or controlled by a marketplace facilitator, even if such seller would not have been required to collect and pay the tax had the sale not been made through such marketplace. Recall in August of 2018, Governor Murphy conditionally vetoed a similar bill making suggestions to clarify the obligations of marketplace facilitators. The Governor’s office has not indicated whether it intends to sign A-4996 or not.

The District of Columbia Council introduced a bill to require a seller who receives gross revenue of more than $100,000 or 200 or more separate transactions, from the sale of tangible personal property, products transferred electronically, or services into the District within the a 12 month period to register to collect and remit sales and use tax. If approved by the Council, the bill would become effective upon approval by the Mayor, a 30-day period of congressional review, and publication in the District of Columbia Register. Revenues from the measure are to be dedicated to reducing the commercial real estate property tax rate by a specified amount, with any additional revenues accruing to the general fund.

The Comptroller of Maryland issued a Tax Alert explaining the application of its economic nexus threshold to remote sellers. The Comptroller has adopted an emergency regulation providing that, effective October 1, 2018, an out-of-state vendor is required to collect sales and use tax if, in the previous or current calendar year, the out-of-state vendor received gross revenue of more than $100,000 or engaged in 200 or more separate transactions, from the sale of tangible personal property or taxable services into the state. The Tax Alert makes clear that sales transacted prior to October 1, 2018, are not included in determining whether a vendor meets the threshold for collection in 2018. Instead, an out-of-state vendor should begin tracking its sales into Maryland beginning October 1. If a vendor meets either threshold during the period October 1, 2018 through December 31, 2018, it is required to register and begin collecting immediately. For the 2019 calendar year and subsequent years, out-of-state vendors not previously required to register with the Comptroller are required to track all sales delivered into Maryland, and when either threshold is met, register with the Comptroller and begin collecting Maryland tax by the first day on the following month. Once a vendor exceeds the threshold in any calendar year, it is required to collect for the entirety of the next calendar year.

The South Dakota Department of Revenue issued a Remote Seller Bulletin explaining that effective November 1, 2018, remote sellers with gross sales of more than $100,000 into the state in the previous or current calendar year, or that have 200 or more transactions for the time period, are required to collect and remit South Dakota tax. The Bulletin also reiterates that the Department is legally prohibited from enforcing retroactive tax collection on remote sellers prior to November 1, 2018, and answers certain FAQs.

The Director of Revenue in Illinois confirmed to the tax press that the state is unlikely to join the Streamlined Sales and Use Tax Agreement (SSUTA). The Department believes it has taken steps to simplify the state’ sales and use tax regime by issuing emergency rules, a FAQs document, and a “Remote Seller Use Tax Matrix”, in which the DoR explains the taxability and applicable tax rate for hundreds of products.

In other activity, New Mexico legislators are considering whether to join SSUTA after a presentation by members of the Multistate Tax Commission outlining the pros and cons of membership. In Nebraska, Senator John McCollister (R) is drafting an economic nexus bill with thresholds that mimics South Dakota’s law—remote sellers with at least $100,000 in sales in Nebraska or at least 200 transactions per year. The bill would also likely address marketplace facilitators.

Please stay tuned to TWIST for more Wayfair related updates.