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Economic Nexus is the Most Prevalent Type of Sales Tax Compliance Legislation This Year

By Joe Crosby | January 27, 2017
Topics: Tax

Last week, we identified the biggest tax issues which state legislatures will address in 2017. One of these issues is collection of sales and use taxes by remote (internet) sellers. Our prediction in this regard has thus far been borne out: as of January 27th, a total of 35 bills have been introduced in 17 states to promote broader collection of sales taxes which are already legally due and payable. A proposal in Wyoming has already passed the House and is expected to see action in the Senate next week.

The purpose of all of these bills is the same: to promote collection of sales taxes by as many sellers as possible (including remote sellers) in the absence of Congressional action. State legislators have pursued a variety of strategies to enhance compliance, which we've grouped into three broad categories (note that some bills have language that falls in more than one category):
  1. Economic Nexus Bills. These bills set aside “physical presence” as the standard for state authority to require sellers to collect sales taxes. Instead of focusing on physical presence, these bills set a bright line sales thresholds (in dollars or number of transactions or both), with sellers exceeding these thresholds required to collect legally due and payable sales taxes. These measures were inspired initially by U.S. Supreme Court Justice Anthony Kennedy, who, in his concurring opinion in DMA v. Brohl, invited the legal system to present the Court with a case that would allow it to revisit its holding in Quill. However, some policymakers are also of the opinion that modern e-commerce can be distinguished from the facts in Quill and physical presence isn't the correct standard—after all, they argue, the internet wasn't even legally available for commercial activity when Quill was decided. Regardless, these proposals are generating new revenue in the two states which have already implemented economic nexus—Alabama and South Dakota—which is garnering notice from other states. So far, there are 17 active economic nexus bills, making this the most prevalent legislative strategy pursued.
  2. Expanded Nexus Bills. These bills aim to extend the physical presence standard to the existing constitutional limit. Many non-practitioners mistakenly believe that “physical presence” means that a retailer must have a store or a distribution center or own some other real estate in a state to be subject to sales tax collection. They may have heard of Quill, but they probably haven't read it. And it's unlikely they're aware or related cases such as Scripto v. Carson or Tyler Pipe v. Washington. The bottom line is that “physical presence” isn't clear; yes, it includes ownership of real estate, but it also has bee interpreted to extend to activities of affiliates, agents, or and others who are acting on behalf or our in conjunction with the remote/internet seller. Examples of these “expanded nexus” bills include affiliate nexus, click-through nexus, and drop ship nexus. This category also includes extending the imposition of a sales tax collection obligation to new economic actors, such as online marketplaces (assuming they have physical presence in the state; if they do not, then the bill falls under economic nexus). So far, there are 15 active expanded nexus bills in state legislatures.
  3. Non-Nexus Collection Bills. Other sales tax compliance bills that don't address the nexus question often require out of state sellers to inform their buyers about the responsibility to pay sales tax on their purchases, typically with an annual mailer. We have seen this policy appear in several states so far this year (6 bills), both as part of standalone legislation and incorporated into larger legislative packages, but in light of the fact that the Supreme Court let stand the 10th Circuit Court's holding that these statutes are constitutionally permissible, it's likely may see them again this year.

Check out the map below to see which states are currently considering sales tax compliance legislation in 2017.

Sales Tax Compliance Legislation 2017- Update 1 (1).png

The table below provides details on each of these bills, including status, category, and a brief summary. We know that new introductions in Maryland, Massachusetts (both as part of a stand alone filing and the governor's budget proposal), and Ohio are imminent. We will continue to provide updates in future blog posts as additional bills are introduced and as the bills below move through the legislative process.

State Bill Category Status Summary
Arkansas SB 140 Economic Nexus Introduced Changes state sales tax nexus rules to establish that out of state sellers have presence in the state if their gross revenues within the state are in excess of $100,000 or if they complete 200 discrete transactions within the state.
Georgia HB 61 Economic Nexus & Reporting Requirement Introduced Expands sales tax nexus to require out of state sellers to remit sales tax on in state purchases if the seller has more than $250,000 worth of annual sales into the state or more than 200 discrete sales. Further requires sellers who do not qualify under the above formulation to inform in state purchasers annually about their responsibility to pay sales tax on their purchases.
Hawaii HB 345 Economic Nexus Introduced Limits state sales tax nexus rules by establishing what does NOT qualify as an instate affiliate. Specifically, casual sales, utilizing non-affiliate third party call centers, and the activities of a person without physical presence in the State if the person and the person's affiliates have less than $100,000 of gross receipts do not establish presence.
Hawaii SB 620 Economic Nexus Introduced Limits state sales tax nexus rules by establishing what does NOT qualify as an instate affiliate. Specifically, casual sales, utilizing non-affiliate third party call centers, and the activities of a person without physical presence in the State if the person and the person's affiliates have less than $100,000 of gross receipts do not establish presence.
Hawaii SB 622 Economic Nexus Introduced Limits state sales tax nexus rules by establishing what does NOT qualify as an instate affiliate. Specifically, casual sales, utilizing non-affiliate third party call centers, and the activities of a person without physical presence in the State if the person and the person's affiliates have less than $100,000 of gross receipts do not establish presence.
Hawaii HB 398 Reporting Requirment Introduced Requires retailers or vendors that are not located in the state and not required to pay or collect general excise or use tax for sales to send certain information to purchasers in the state and further requires retailers or vendors to submit an annual report to the department of taxation.
Hawaii SB 161 Reporting Requirment Introduced Requires retailers or vendors that are not located in the state and not required to pay or collect general excise or use tax for sales to send certain information to purchasers in the state and further requires retailers or vendors to submit an annual report to the department of taxation.
Indiana HB 1158 Expanded Nexus Introduced Provides that if a purchaser is physically present at a retail merchant's location when a product is purchased and the purchaser requests delivery of the product to a location outside Indiana, the sale is considered to be made at the business location of the sale and subject to the state sales tax, unless the purchaser presents proof during the consummation of the sale that the purchaser resides outside Indiana.
Indiana SB 545 Economic Nexus Introduced Provides that an out of state seller must collect the state sales tax if: (1) the seller's gross revenue from sales into Indiana in a calendar year exceeds $100,000; or (2) the seller makes sales into Indiana in more than 200 separate transactions.
Massachusetts SD 259 Expanded Nexus Draft Instructs the tax commissioner to prepare the government for the collection of sales taxes on remote and foreign sales to the fullest extent that federal law allows.
Minnesota SF 45 Expanded Nexus Introduced Changing state sales tax nexus standards to require tax collection by remote/out of state sellers if the seller employs an in state agent, affiliate, or marketplace provider who facilitates sales.
Mississippi HB 480 Economic Nexus Introduced Redefines "doing business in the state", for sales tax purposes, to stipulate that out of state sellers have presence in the state if the seller's total sales into the state exceed $250,000.
Mississippi HB 688 Expanded Nexus Introduced Amends definition of "retailer" and "doing business in the state" to establish that an out of state seller has sales tax nexus if they employ or contract with an in state agent who facilitates the sale of tangible personal property.
Mississippi SB 2414 Expanded Nexus Introduced Expands sales tax nexus standard to establish that an out of state seller has presence within the state if the seller employs an agent inside the state who facilitates the seller's commercial activity.
Mississippi SB 2008 Expanded Nexus Introduced Establishes an affiliate nexus standard for the state sales tax, whereby a seller will be assumed to have nexus with Mississippi if they contract with an in-state resident for customer referrals.
Mississippi HB 1304 Economic Nexus Introduced Expands sales tax nexus standard to include out of state sellers who make more than $250,000 worth of sales into the state.
Nebraska LB 44 Economic Nexus & Reporting Requirement Introduced Adopt the Remote Seller Sales Tax Collection Act, which would require remote or internet sellers to remit sales tax if they have more than 200 discrete sales into the state or if their in-state sales exceed $100,000. Further requires remote sellers to send notifications to all instate buyers detailing all of the purchases that they made with the seller and informing of them of their responsibility to pay tax on these transactions.
Nebraska LB 564 Economic Nexus & Reporting Requirement Introduced Adopt the Remote Seller Sales Tax Collection Act, which would require remote or internet sellers to remit sales tax if they have more than 200 discrete sales into the state or if their in-state sales exceed $25,000. Further requires remote sellers to send notifications to all instate buyers detailing all of the purchases that they made with the seller and informing of them of their responsibility to pay tax on these transactions. 
New Mexico SB 123 Expanded Nexus Introduced Establishing that an out of state seller has presence in the state if they retain an instate affiliate or agent, so long as their sales into the state total more than $100,000
New Mexico HB 202 Economic Nexus & Expanded Nexus Introduced Establishes that an out of state seller is not deemed to have physical presence for sales tax purposes if they and any affiliates have less than one hundred thousand dollars ($100,000) of gross receipts in the state. Further provides that an out of state seller's gross receipts also include any sales realized from a multi-vendor marketplace platform.
New York A 3009 (Budget) Expanded Nexus Introduced Expanding state sales tax nexus rules to require "marketplace providers" to collect sales taxes associated with out of state sales
New York S 2009 (Budget) Expanded Nexus Introduced Expanding state sales tax nexus rules to require "marketplace providers" to collect sales taxes associated with out of state sales
North Dakota SB 2298 Economic Nexus Introduced Requires remote sellers to collect the sales tax is their annual sales into the state are valued at more than $100,000 or if they have more than 200 discrete sales into the state.
Rhode Island HB 5175 (Budget) Expanded Nexus Introduced Requires "marketplace providers" to collect and remit sales taxes associated with purchases made from out of state sellers.
South Carolina SB 214 Expanded Nexus Introduced Presumes sales tax nexus if an out of state seller contracts with an in-state agent to refer potential customers to the seller.
Utah SB 110 Economic Nexus Introduced Requires remote sellers to collect the sales tax if they had sales equaling more than $100,000 or more within the state or if they store/use/consume tangible personal property stored or electronically transferred in the state.
Utah SB 101 Economic Nexus Introduced Requires remote sellers to collect the sales tax if they had sales equaling more than $100,000 or more within the state or if they store/use/consume tangible personal property stored or electronically transferred in the state.
Utah SB 83 Reporting Requirement Introduced Requires out of state sellers to notify buyers of their responsibility to remit sales tax on their purchases.
Virginia HB 1500 (Budget) Expanded Nexus Introduced Establishing that having inventory in Virginia is sufficient to establish nexus for sales tax purposes
Virginia SB 900 Expanded Nexus Introduced Establishing that having inventory in Virginia is sufficient to establish nexus for sales tax purposes
Virginia HB 2058 Expanded Nexus Introduced Provides that storage of inventory in the Commonwealth is sufficient nexus to require out-of-state businesses to collect sales and use tax on sales to customers in the Commonwealth.
Virginia SB 962 Expanded Nexus Introduced Provides that storage of inventory in the Commonwealth is sufficient nexus to require out-of-state businesses to collect sales and use tax on sales to customers in the Commonwealth.
Washington HB 1549 Economic Nexus Introduced Establishes that a company has economic nexus with the state if they have more than $267,000 worth of receipts within the state.
Washington SB 5112 Economic Nexus Introduced Establishes that a company has economic nexus with the state if they have more than $267,000 worth of receipts within the state.
Wyoming HB 19 Economic Nexus Passed First Chamber Changes state sales tax nexus rules to provide that remote sellers must collect the state tax if their in-state sales exceed $100,000 or if they make 200 or more separate sale. The bill also provides a provision to protect sellers from liability of these policies are later deemed to be unlawful.

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