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Updates to USA Tax Regulations for Ecommerce Sales

  
17 August 2017
  

Updates to USA Tax Regulations for Ecommerce Sales

US states can only demand that online retailers that have a physical presence in their states, such as a physical store, a warehouse or a factory, collect sales taxes on purchases by residents of that state. Technically, people who buy goods online tax free are supposed to make sales tax payments on those purchases to their home state. Sellers with more than $1 million a year in sales would be responsible for collecting the tax from buyers in the 45 states plus D.C. that currently charge sales tax.

In the 1992 Supreme Court case Quill Corp. v. North Dakota, the Court ruled that a state could only require a seller to collect taxes if it had a physical presence (or nexus) in the state. After lobbying US Congress for years to address this specific issue, states have now taken the matter into their own hands by expanding nexus laws.

Very recently, some US states have gone one step further by attempting to ignore the physical presence standard and instead impose an “economic presence” standard. According to these new laws, after a company passes a certain amount of sales revenue in the state, they have established an economic presence and should therefore collect sales taxes.

The US state of South Dakota was the first state to pass legislation directly challenging Quill, and a legal challenge is making its way through the court system. Lawmakers in Maine recently passed similar legislation that is now is awaiting approval by the governor. Both states would require remote retailers to collect sales taxes if their revenue in the state exceeds $100,000.

Lawmakers in both states are aware that these laws violate the Quill decision and want the Supreme Court to re-evaluate that case. South Dakota stated this intention in court while Maine explicitly acknowledges this in its bill.

These states are not the only ones that wish for the Supreme Court to express a new decision: Alabama, Tennessee and Massachusetts have also sought to impose an economic presence standard through new regulations.

In the past few years, states have become more aggressive in expanding their nexus rules. With states expanding their ability to apply their sales taxes to out-of-state businesses without simplifying their sales tax laws, more administrative costs and legal risks are imposed on the interstate economy. Because of this, many states offer some sort of compensation for sales tax collections. One example is Maine that acknowledges the potential cost and would allow businesses to keep two percent of the sales taxes collected as compensation.

New Bills

In April 2017, members in both houses of Congress introduced two new bills. These bills have not passed yet but need to be taken into consideration since they could have direct impact for ecommerce companies that want to sell products in the USA.

The two bills are the Marketplace Fairness Act (MFA) and the Remote Transaction Parity Act (RTPA):

Marketplace Fairness Act (MFA)

If this act passes, online retailers who make more than $1 million in remote (non-home state) sales per year would be required to collect sales tax not only in the states where they already have sales tax nexus, but in any states where they don’t have a nexus at all. The $1m is remote “sales” and not profit.

As it currently stands, the precedent set with the Quill v. North Dakota case of 1992 protects retailers from being required to collect sales tax in states where they do not have a significant presence. This law would strip that protection away and require sellers to collect sales tax in states not only where they have nexus, but also where they have sales.

Remote Transaction Parity Act (RTPA)

Similar to the Marketplace Fairness Act, the Remote Transaction Parity Act would not affect existing nexus, but would require retailers to collect sales tax in remote states, as well as in states where they have nexus.

The RTPA works on a tiered system, with online sellers making $10 million in sales or more subjected to the law in the first year, online sellers making $5 million in sales or more subjected to the law in the second year, and online sellers making more than $1 million in sales subjected to the law in the first year.

New Internet Sales Tax Laws

But it does not stop here: lawmakers in other US states are also discussing internet sales tax bills.

Wyoming for example recently advanced a bill that would require online sellers to collect sales tax if they make 200 transactions or $100,000 worth of sales in that state. Mississippi’s governor proposed creating a voluntary remittance program, similar to Alabama’s. Louisiana’s tax notification requirements for remote sellers take effect on July 1, 2017. Remote sellers must provide purchasers with an annual notice of their purchases and keep records of Louisiana sales with aggregate value of $250 or more per sale.

California and New Jersey are lowering their state sales tax rates. Missouri has a county-by-county breakdown explaining which counties are extending or imposing new sales tax in 2017. Other states with changes on the way include:

  • Arkansas (6 counties changing sales tax rates)
  • Florida (11 counties imposing new sales taxes)
  • Georgia (2 new transportation sales taxes, effective March 1, 2017)
  • Illinois (sales tax changes in Danville and special districts)
  • Kansas (city, county, and district tax changes)
  • Minnesota (4 counties adding transit sales tax, 1 county’s local sales tax expires)
  • Nebraska (1 new local tax, 4 tax increases)
  • Nevada (sales tax increase in Washoe and Clark County, effective April 1, 2017)
  • Oklahoma (12 sales tax increases, 1 decrease, and a new use tax)
  • Utah (North Logan’s energy sales and use tax increases to 6%)
  • Washington (new sales tax rates in 12 areas, including unincorporated areas)
  • Wisconsin (Sheboygan County imposes new 0.5% sales tax)

Additional Reading

Comments

Anonymous - Very informative...
17 Aug 2017 16:15
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