Sales Tax Sleeper States
Since the Supreme Court overturned Quill and allowed states to require remote sellers to charge sales tax, about a dozen states have passed or begun enforcing those laws. Before the landmark Wayfair decision,
sellers had to have a physical presence in a state, in the form of a store or a warehouse or a sales force or something similar, to establish nexus. Now, states can define nexus for themselves.
Many states have set thresholds for sellers. In the Wayfair case, South Dakota said that any remote seller with 200 transactions or $100,000 in revenue could be said to have economic nexus. These sellers, South Dakota figured, owed the state something for the opportunity to do business. The Supreme Court agreed.
Any company with fewer sales would be exempt.
Quite a few states have used the same thresholds. That’s a reasonable choice. Changing the thresholds could cause some court in the future to agree that the state was creating an “undue burden.” Sticking with the definition which the Supreme Court already accepted decreases the chances of having a new sales tax law struck down.
What about the sleeper states?
For the states that have passed new laws, retailers or manufacturers who make sales know where they are. But what about the states that haven’t yet made new laws? Those are the sleeper states. They could wake up at any time and pass new laws requiring sales tax compliance from remote sellers.
There’s still a lot of uncertainty about the sales tax laws for remote sellers. The Supreme Court probably won’t take the issue up again soon, and many observers think Congress will stay out of the conversation. That means that multiple test cases will probably go to court before the new definitions of nexus settle in. Some states may just be waiting to see what happens before they commit themselves.
California’s governor has already vowed “to modernize California law consistent with the holding of Wayfair” and “to ensure that small businesses are not unduly burdened by the default expansion of the duty to collect use tax due to Wayfair.” California is the fifth largest economy in the world, right behind Germany and Japan. Any changes in their remote seller sales tax laws would affect a great many companies.
As of this writing, California still uses physical presence to establish nexus for sales tax compliance. Their rules about trade shows and affiliate nexus both include financial thresholds, but the difference between the two — $100,000 for trade shows and $1,000,000 for affiliate income — is so large that they can’t provide much of a clue as to where the Golden State might set thresholds when they get around to changing their tax laws.
How to prepare for Sleeper State awakenings
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