New sales tax collection requirements for remote sellers and marketplace providers take effect October 1, 2019, in more than a dozen states — including Texas, the second most populous state in the nation. In fact, it’s getting hard to sell across state lines without encountering economic nexus, the fallout from the United States Supreme Court’s seminal sales tax decision in South Dakota v. Wayfair, Inc.
South Dakota v. Wayfair, Inc. recap
The Supreme Court’s ruling in South Dakota v. Wayfair, Inc. enables states to tax remote sales.
A business must have nexus — a connection with a state — for the state to require the business to collect and remit sales tax. Before the Wayfair ruling, sales tax nexus was based solely on physical presence: States couldn’t require an out-of-state seller with no physical presence in the state (remote seller) to collect and remit sales tax.
Wayfair changed that: Physical presence in a state still establishes nexus, but it’s no longer the only way to create it. Wayfair authorizes states to require remote sellers to collect and remit sales tax based solely on their sales volume or transactions in the state, or both. This is economic nexus.
Of the 45 states that have a general sales tax, 43 have adopted an economic nexus law or rule since the June 2018 Wayfair ruling. Most of those laws or rules are already being enforced, but not all: Economic nexus comes online in five states on October 1, 2019 (and is amended in two states).
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by gail cole
september 23, 2019