On June 21, 2018, the U.S. Supreme Court (Court) upheld South Dakota’s economic nexus provisions for sales tax in arguably the most influential state tax decision in 30 years. The Court held in favor of South Dakota’s nexus standard to impose sales tax collection responsibilities on out-of-state sellers with $100,000 in sales and/or 200 transactions into the state. Since physical presence is no longer required for sales tax collection, this court ruling should affect remote sellers engaged in online commerce as well as domestic and international companies with multistate sales in traditional business environments.
In the wake of the decision, nearly all other states have modeled the South Dakota legislation. A few states, such as Texas and California, have raised their sales threshold to $500,000. However, while states continue to enact remote-seller legislation, several states have begun to eliminate the transaction threshold.
Recent Remote-Seller Legislation
Arizona, Arkansas, Louisiana, New Mexico, Oklahoma, Pennsylvania, Tennessee, Vermont and Virginia have enacted remote-seller nexus thresholds. Arkansas and Louisiana’s legislation impose a sales tax collection responsibility on out-of-state vendors with $100,000 in sales or 200 transactions into the state while Tennessee’s legislation imposes a sales tax collection responsibility on out-of-state vendors with $500,000 in the state. All others only have a $100,000 threshold. Arizona, New Mexico, Pennsylvania, Oklahoma and Tennessee’s legislation do not include a transaction count threshold.
Elimination of Transaction Threshold
In 2019, states with existing remote-seller legislation began eliminating their transaction thresholds, including Alabama, California, Colorado, Iowa, North Dakota, Ohio and South Carolina.
Kansas’ Alternative Method of Enforcement
In 2018, the Nebraska Department of Revenue issued guidance stating that remote sellers will be subject to collection requirements beginning January 1, 2019, if they: (1) are “engaged in business” in the state as defined under Neb. Rev. Stat. Section 77-2701.13; and (2) make more than $100,000 of sales or 200 or more separate transactions into the state.
Similar to Nebraska, the Kansas Department of Revenue (Department) issued Notice 19-04 on August 1, 2019, that references code citation K.S.A. 79-3702(h)(1)(F), which states the following:
“’Retailer doing business in this state’” or any like term, means:
(F) any retailer who has any other contact with this state that would allow this state to require the retailer to collect and remit tax under the provisions of the constitution and laws of the United States.”
There is no small-seller provision by way of dollar or transaction threshold.
Remote sellers who are not already registered with the Department must register and begin collecting and remitting Kansas sales and/or use tax by October 1, 2019. The Department will not enforce the statutory requirements to collect and remit on these remote sellers for sales made into Kansas prior to that date.
There are now 16 states without a transaction threshold of any kind, 26 with a 200-transaction threshold and three states with a 100-transaction threshold: Massachusetts, New Mexico and New York.
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