Insights Magazine Volume IX - Page 17

Sales Tax Nexus Businesses Selling Out of State Beware Amy Jackson, JD Historically, sales tax nexus was determined based on the amount of physical connection an out-of-state seller had with the state. Over time, some states have adopted provisions that have blurred the lines regarding how much physical presence is actually needed to trigger nexus (e.g., Amazon laws). A few states have further expanded their nexus provisions to a standard that requires no physical presence. This type of nexus is often referred to as economic nexus. Under these new provisions, an out- of-state seller is deemed to have substantial nexus as a result of the economic benefits the seller receives in the state (e.g., sales to customers located in the state). The most recent states to enact an economic nexus standard are Massachusetts and Wyoming. New Directive Impacts Dealers with Sales in Massachusetts The Massachusetts Commissioner of Revenue has issued a directive, No. 17-1, which explains the state’s interpretation of its current nexus provision for sales and use tax purposes. The directive became effective on July 1, 2017. The directive indicates that an out-of-state dealer is presumed to have substantial nexus with Massachusetts if the dealer has (1) 100 or more transactions and (2) more than $500,000 of sales to Massachusetts customers in the preceding 12 months. New Legislation Impacts Dealers with Sales in Wyoming Wyoming has recently passed legislation, Section 39- 15-501, which adopts an economic nexus provision for sales and use tax purposes. This statute became effective on July 1, 2017. Under the new statute, an out-of-state dealer is presumed to have substantial nexus with Wyoming if A few states have further expanded their nexus provisions to a standard that requires no physical presence. (1) the dealer has more than $100,000 of sales to Wyoming consumers in the preceding calendar year; or (2) the dealer has more than 200 separate transactions to Wyoming consumers in the preceding calendar year. The legislation has a temporary injunction pending litigation clause, which means that the Wyoming Department of Revenue cannot enforce the provision until there is a case decision regarding the validity of the provision. It is unknown at this time if there are any taxpayers willing to litigate this issue in Wyoming. Other States’ Economic Nexus Provisions Alabama, South Dakota, Tennessee, Vermont, and Washington have also enacted similar economic nexus provisions. Below is a summary for each state. Alabama (Regulation: 810-6-2.90.03) – Effective: Jan. 1, 2016; economic benefit threshold: $250,000 per year based on previous calendar year. South Dakota (Statute: Section 10-64-2) – Effective: May 1, 2016, but there is a temporary injunction pending litigation; economic benefit threshold: $100,000 in the current or previous calendar year. Tennessee (Regulation: 1320-05-01-.129) – Effective: January 1, 2017; economic benefit threshold: $500,000 in the past 12 months; taxpayers were expected to be registered for sales and use tax by March 1, 2017, and begin collecting and remitting tax by July 1, 2017. (continues on page 16) 15