We have been closely following the rapid rise of state laws and regulations imposing sales tax nexus or reporting requirements on out-of-state sellers with no physical presence in the state. In the wake of decisions by the U.S. Supreme Court and the U.S. Court of Appeals for the Tenth Circuit in cases brought by the Direct Marketing Association (see prior coverage), states have felt emboldened to enact provisions that challenge the Supreme Court’s holding in Quill v. North Dakota, which demands that a seller have physical presence in a state before the state can require the seller to collect sales and use tax.
Now that legislative sessions in many states are winding down, we thought it would be a good time to take stock of where we stand. So far, six states have enacted some sort of sales tax obligation on sellers with no physical presence, with Louisiana having done so just last week. In addition, Tennessee has proposed, but not yet adopted, a regulation imposing nexus on out-of-state sellers. These measures are of two types: (i) economic nexus provisions that require out-of-state sellers to collect and remit sales tax if their sales into the state meet certain thresholds and (ii) reporting provisions that require sellers to notify the state that in-state customers have made taxable purchases. The chart below gives an overview of these provisions. Nebraska, Rhode Island, and Utah considered and failed to pass economic nexus or reporting provisions for out-of-state sellers in 2016.
We also note legal challenges to the provisions of South Dakota and Alabama. Both South Dakota and out-of-state retailers selling into South Dakota have filed litigation addressing the state’s new sales tax nexus law (see prior coverage of the law). South Dakota filed for declaratory judgment to enforce the measure against Wayfair Inc., Systemax Inc., Overstock.com Inc., and Newegg Inc. on April 28. Meanwhile, the American Catalog Mailers Association and Netchoice filed for declaratory judgment against the state to block the measure on April 29.
In Alabama, Newegg Inc. filed a notice of appeal to the Alabama Tax Tribunal of the company’s sales tax assessment under the state’s economic nexus regulation. In the appeal, filed June 8, Newegg argues that its assessment violates Quill as well as the state’s own sales tax statutes.
We will stay tuned to this litigation.
|State||Provision Type||Effective Date||Reference||Relevant Provisions|
|AL||Economic Nexus||January 1, 2016||Ala. Admin. Code 810-6-2-90.03.||Sellers without physical presence are subject to sales tax obligations when Alabama sales exceed $250,000 in the previous calendar year and the seller conducts one or more activities specified in Ala. Code § 40-23-68.
|CO||Reporting||Feb. 24, 2010
(currently on hold due to pending litigation)
|Colo. Rev. Stat. § 39-21-112(3.5)
Colo. Code Regs. 39-21-112.3.5
|After each calendar-year period, for purchasers who made more than $500 of Colorado purchases, a retailer who does not collect Colorado sales and use tax must send an annual purchase summary to each customer by January 31 of the following year and send an annual customer information report to the Department of Revenue by March 1 of the following year.
Retailers who had total gross sales in the prior year of less than $100,000 and who reasonably expect to have gross sales in the current year of less than $100,000 are exempt.
|LA||Reporting||July 1, 2017||HB 1121 (2016), signed 6/17/16||A “remote retailer” is a retailer who is not required to collect sales and use taxes and who makes more than $50,000 of taxable sales or services into Louisiana in a calendar year.
After each calendar-year period a remote retailer must send an annual purchase summary to each customer who made Louisiana purchases by January 31 of the following year and send an annual customer information report of Louisiana purchases to the Department of Revenue by March 1 of the following year.
|OK||Reporting||November 1, 2016||HB 2531 (2016), signed 5/17/16||Requires any retailer making sales of tangible personal property into Oklahoma who is not required to collect use tax to send an annual purchase summary to each Oklahoma purchaser by February 1 of each year identifying the total amount of Oklahoma purchases made in the prior year.
Provides amnesty for out-of-state retailers who register to collect sales and use taxes by May 1, 2017.
|SD||Economic Nexus||May 1, 2016||SB 106 (2016), signed 3/29/16||Sellers without physical presence are subject to sales tax collection obligations when South Dakota sales exceed $100,000 in either the current calendar year or the prior calendar year or the seller sells taxable property or services into South Dakota in 200 or more transactions.
Remote sellers are subject to all the obligations of sellers with physical presence.
|TN||Economic Nexus||January 1, 2017 (registration)
July 1, 2017 (collection)
|Tenn. Comp. R. & Regs. 1320-05-01-.129 (PROPOSED)||Out-of-state dealers that make sales exceeding $500,000 to consumers in Tennessee in any calendar year have substantial nexus and are subject to all the obligations of sellers with physical presence.|
|VT||Reporting||The earlier of July 1, 2017, or the quarter after Colorado implements its reporting requirements||H 873 (2016), § 25–27, signed 5/25/16||“Vendors” include retailers who had sales for delivery into Vermont during the preceding 12 months exceeding $100,000 or 200 or more individual Vermont-destined sales transactions.
After each calendar-year period, for purchasers who made more than $500 of Vermont purchases, a non-collecting vendor must send an annual purchase summary to each customer by January 31 of the following year and send an annual customer information report to the Department of Taxes by March 1 of the following year.