At the beginning of October, more than a dozen states enacted new policies regarding internet sales taxes. What exactly does this legislation mean for small and medium-sized businesses? We’ve assembled this post to help inform our eCommerce clients in the state of California, as well as businesses impacted in states with similar legislation, about these important changes.
“The Tax Case of the Millennium”
The recent colossal wave of internet sales tax laws can be attributed to the landmark case, South Dakota v. Wayfair, Inc., Overstock.com, Inc., and Newegg, Inc. Referred to simply as Wayfair, the case questioned whether the requirement of business nexus (physical presence) for sales taxes should stand. On June 21, 2018, the Supreme Court ruled in favor of South Dakota, removing the physical nexus requirement for collecting sales taxes and requiring sellers to collect and remit sales tax based on the establishment of an “economic nexus” threshold. As a result, regardless of where your company is physically located, other states may require you to collect taxes on internet transactions.
“What The WayFair Decision Means For Out-of-State Sellers“, published by Katz, Sapper & Miller months after the ruling was made, breaks down what nexus is, what Wayfair’s overruling implications are, and what it means for businesses in the US.
Who Is Affected By The New Laws?
In Forbes’ recent article “New Sales Tax Rules Take Effect This Week In More Than a Dozen States,” the author lists all of the states that now require internet sales taxes to be collected as of October 1st. These states include: Arizona, California, Colorado, Kansas, Maine, Maryland, Massachusetts, Minnesota, Nevada, North Dakota, Ohio, Oklahoma, South Carolina, Texas, Tennessee, Utah and Wisconsin.
Currently these changes affect remote sellers (out-of-state sellers) and marketplace facilitators (think consolidated marketplaces like Amazon Marketplace, which enables smaller retailers to have a greater sales reach).
Recommended Sales Tax Resources
While doing our own research, our design team has compiled the following helpful resources for learning more about the new internet sales tax legislation on a state-by-state basis. Particular attention is paid to California, where the vast majority of our clients are established and located.
The Sales Tax Institute’s “State Notices & Resources For Remote Sellers” lists all states with internet sales tax laws and provides up-to-date coverage of nexus legislation post-Wayfair, including state resources and amendment activity. They also offer more approachable guidance on their FAQ pages, “I’m Making Sales Over the Internet. Do I Have to Collect Sales Tax on All the Sales I Make?” and “Why Doesn’t the Out-of State Retailer Collect the Tax?,” which help break things down into simpler language. Links to supplemental resources are included at the bottom of each page.
The California Department of Tax and Fee Administration’s “Publication 109, Internet Sales” outlines requirements for paying California’s sales and use taxes on internet sales. This excellent resource covers everything from basic sales to online marketplaces, and even designates sales that are non-taxable. Additionally, the CDTFA’s “Tax Guide for Out-of-State Retailers” provides ample information for remote companies doing business in the state of California.
Notes On Compliance
With this new legislation rolled out and in effect, we’d like to offer a friendly reminder for our clients to touch base with their tax advisors to ensure their businesses are fully compliant with the new tax laws. Forbes’ aforementioned article states remote sellers are expected to immediately comply, while marketplace facilitators are given a grace period of three years to reach 100% compliance.
Thanks for reading! We hope that this post has provided invaluable information for understanding the latest internet sales tax legislation that is sweeping the nation. If you are a California-based business with specific questions and/or concerns, we recommend reaching out to the CDTFA for assistance.