Multi-State – Changing The State And Local Tax Nexus Playing Fields

An Update on the Impact of Wayfair

One of the major state and local tax developments that CPAs have been dealing with is the Supreme Court’s decision on June 21, 2018, in South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018), and the sales tax economic nexus implications related to it. In a 5-4 decision, the Court found in favor of the state of South Dakota, expanding the definition of in-state nexus to include a “virtual presence.” This landmark decision has created a profound impact on state and local sales tax administration and, in turn, states’ authority to require sales and use tax registration and collection for out-of-state companies that do not have any physical presence within a specific jurisdiction.

Prior to the decision, the following 11 states had enacted legislation that expanded their respective definitions of nexus: Hawaii, Kentucky, Maine, Massachusetts, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, Tennessee, and Vermont. Apart from Tennessee, whose law is currently stayed pending litigation, some of these state rules were enforceable upon enactment—specifically, Massachusetts, Ohio, Pennsylvania, and Rhode Island. New York recently issued an administrative pronouncement indicating its rule became enforceable as of June 21, 2018, upon the delivery of the Wayfair decision, while four more states’ rules—Hawaii, Maine, Oklahoma, and Vermont—became enforceable on July 1, 2018. Kentucky’s was originally slated to begin on July 1, 2018; however, the state decided to extend enforcement to begin on October 1, 2018.

Since the Supreme Court’s decision, many states, and also the District of Columbia, have enacted legislation similar to South Dakota’s rule, which requires an out-of-state or remote seller to register and begin collecting sales/use tax if its gross sales in the current or preceding year exceed $100,000, or it has 200+ sales transactions delivered into the state during the current or preceding year. Forty-five states and the District of Columbia impose a statewide sales/use tax; of these 46 jurisdictions, 36 states have begun enforcing their rules, with California and Texas to begin on April 1, 2019, and October 1, 2019, respectively. Six more states—Arizona, Arkansas, Kansas, Missouri, New Mexico, and Virginia—have introduced similar legislation that is likely to pass and become enforceable on or by January 1, 2020. Currently, neither Florida nor Idaho has any pending legislation.

For The Full Story: The CPA Journal

The cpa journal
by corey l. rosenthal, jd, scott smith and wendy galex, jd, llm
June 2019 | May 2019 issue