Recently, in a shot heard “round the internet,” the Supreme Court of the United States (SCOTUS), in the case of South Dakota v. Wayfair, Inc. (Wayfair), announced a new rule for imposing state and local sales tax collection duties on out-of-state sellers (remote sellers). The new rule, commonly referred to as the Economic Nexus rule, allows state and local governments to require remote sellers to collect, account for, and pay collection duty (state and local sales taxes) on the basis of the remote sellers’ “economic and virtual contacts” with their customers in the taxing state. Now, remote sellers are faced with meeting the various rules and deadlines in the states where they have collection duties as a result of the Economic Nexus rule.
The Wayfair Case Upends the Physical Presence Rule
Prior to Wayfair, the “physical presence” rule generally had protected remote sellers with no physical presence in a taxing state from a nationwide collection duty. For a remote seller to have had a sales tax collection duty imposed by a state or locality under this now obsolete rule, the remote seller generally had to have had either property or employees in the taxing state. The Wayfair decision established that a remote seller’s making online or mail order sales to a state’s residents or shipping to an address in the state would be a “sufficient enough” connection to a taxing state for it to impose a collection duty.
While the Wayfair decision answered that a remote seller’s Economic Nexus is a sufficient connection to a state for the remote seller to lawfully have a collection duty in that taxing state, many related questions remain, including:
- Will taxing states impose a collection duty on sales below a certain dollar amount or quantity?
- Will there be a simplified tax-rate structure?
- What will be the start date for collection duties?
- Will certain types of sales be exempted or excluded?
Gradually, though not uniformly, states are beginning to answer these questions. Importantly, some of the states’ answers will require remote sellers to act soon in order to comply with the law. Two of these states, Tennessee and Georgia, have enacted the sales tax Economic Nexus rule, and their answers to these questions, and related deadlines, are discussed below.
Tennessee set $500,000 as the amount of retail sales that must be exceeded under the Economic Nexus standard. As a taxing state, Tennessee can impose a collection duty on remote sellers (which Tennessee refers to as “out-of-state dealers”) with no in-state physical presence, whose sales exceed this amount. Tennessee regulations clarify that the $500,000 sales threshold is to be measured “during the previous twelve-month period.” In multiple June 2019 Notices, the Tennessee Department of Revenue (TN-DOR) ruled that wholesale amounts are to be excluded when measuring these sales, but that tax-exempt sales are to be included. Enacted Tennessee legislation also excludes from the sales calculation “responding out-of-state businesses” and “responding out-of-state employees” whose only connection to Tennessee is performing in-state disaster- or emergency-related work.
Remote sellers who are already meeting the $500,000 sales amount as of July 31, 2019, must both:
- Register and open a sales tax collection account with the TN-DOR by the July 31, 2019, deadline.
- Begin collecting, reporting via monthly tax returns, and paying Tennessee state and local sales taxes to TN-DOR by the October 31, 2019, deadline.
Remote sellers that haven’t met the $500,000 sales amount on or before July 31, 2019, must register in the month that sales amount is met, and on the first day of the third month thereafter, must begin collecting, reporting, and paying state and local sales taxes.
Remote sellers required to register with the TN-DOR can do so via the Tennessee Taxpayer Access Point under the “Register a New Business” option.
For remote sellers, one item of good news in the June Notices is that Tennessee will not apply Economic Nexus rules retroactively.
As for a simplified tax-rate structure, the June Notices contain rules that may make life a bit complicated for remote sellers when it comes to Tennessee local sales taxes. Although local taxes are reported to the TN-DOR at the same time and on the same returns as state sales taxes, each local county or municipality in Tennessee can, within limits, set its own tax rates. As the June Notices explain, the Tennessee uniform local tax rate that remote sellers previously used has been abolished. Remote sellers now must comply with specific local sales tax rates for each municipality or county jurisdiction into which their goods are shipped or delivered. Thus, for sales on and after October 1, 2019, remote sellers registered with the TN-DOR must also report their sales based upon the Tennessee address to which goods are shipped or delivered. The June Notices clarify that sales into a municipality—rather than sales into the county in which the municipality is located—must be reported. It remains to be seen whether remote seller access to the TN-DOR’s “boundary database” will ease any of this complexity.
Notably, under certain Tennessee court and attorney general rulings, it appears that remote sellers likely will be unable to avoid the new Economic Nexus and related rules by using Tennessee in-state “market facilitators,” which will be held liable for state and local taxes on sales made on behalf of remote sellers.
For retail sales made on or after January 1, 2020, Georgia set $100,000 as the amount of gross revenue that remote sellers (or “online retailers”) must have exceeded in the previous or current calendar year (i.e., 2019 and 2020, respectively) under the Economic Nexus rule. For dates starting January 1, 2019, and ending prior to January 1, 2020, the old amount that must have been exceeded was $250,000 for sales that took place in 2018 or 2019 (i.e., the previous and current calendar years, respectively). In addition, for retail sales made at any time after January 1, 2018, under the same calendar-year rules above for the tax years beginning January 1, 2019, (i.e., 2018 and 2019) and 2020 (i.e., 2019 and 2020), Economic Nexus can be met when a remote seller makes 200 or more separate retail sales in the applicable previous or current calendar years.
Prior to April 28, 2019, remote sellers subject to a Georgia collection duty could elect to opt out and instead were subject to a notice and reporting duty, but this option was repealed. In a 2019 Revenue Bulletin, Georgia ruled that on and after July 1, 2019, all remote sellers meeting the $250,000 gross revenue amount, or 200 or more separate retail sales quantity for 2019 or 2018, and that previously opted for the notice and reporting duty, must register, collect, report, and remit Georgia sales tax on their taxable sales of goods delivered to a Georgia location.
The bulletin makes clear that, like Tennessee, Georgia sales taxes include both state tax and local taxes, with the local tax rate based upon delivery location, whether by physical or electronic means.
For more information about state and local sales tax compliance under the new Economic Nexus rule, or any other matter involving a state or local tax planning issue or tax dispute, contact one of our PYA executives below at (800) 270-9629.
© 2019 PYA
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