Governor Tom Wolf of Pennsylvania has signed legislation requiring certain out-of-state sellers to either collect or remit Pennsylvania sales or use tax, or comply with use tax notice and reporting requirements.
House Bill 542 (Act 43) applies to referrers, remote sellers, and marketplace facilitators with aggregate taxable retail sales in Pennsylvania of at least $10,000 during the immediately preceding 12-month period. The measure requires them to register to collect and remit tax on Pennsylvania sales on or before March 1, 2018 (for the balance of the 2017–18 fiscal year), and on or before June 1 of each calendar year thereafter (starting June 1, 2019).
Qualifying vendors that don’t comply with this requirement by the set dates “shall be deemed to have elected to comply with the notice and reporting requirements.”
Why give out-of-state vendors a choice?
The internet allows businesses to easily sell into all states from anywhere — anyone with internet access is a potential customer. Yet under precedent upheld by Quill Corp. v. North Dakota, 504 U.S. 298 (1992), states don’t have the authority to impose a tax obligation on out-of-state sellers. As a result, their sales and use tax collections have dropped as internet sales have risen, and they’re motivated to find a way to tax remote sales.
Numerous states do have laws on the books that tax sales by out-of-state sellers. However, given Quill, they lack the power to enforce them. Use tax notice and reporting requirements serve as motivator: In theory, they’re so onerous they should compel remote vendors to voluntarily collect and remit tax.
While remote sales tax laws live in legal limbo, use tax notice and reporting laws are on terra firma. In Dec. 2016, the Supreme Court of the United States allowed Colorado’s embattled use tax notice and reporting requirement to stand. As a result, several other states have been emboldened to create their own use tax notice and reporting laws.
Other states with use tax reporting requirements
Pennsylvania isn’t the only state to offer remote sellers the choice to collect and remit tax or comply with notice and reporting requirements. Similar legislation has been enacted in Rhode Island (effective Aug. 17, 2017) and Washington (effective Jan. 1, 2018).
In addition, the following states have use tax notice and reporting requirements for remote vendors that aren’t required to collect and remit tax but do a certain amount of business in the state:
- Alabama (effective July 1, 2017)
- Colorado (effective July 1, 2017)
- Louisiana (effective July 1, 2017)
- Oklahoma (effective Nov. 1., 2016)
- Puerto Rico (effective July 1, 2017)
- Vermont (effective July 1, 2017)
Theoretically, Pennsylvania’s new legislation positions it to win no matter which option a remote vendor selects. Either it will increase sales and use tax revenue from voluntarily collecting remote vendors, or it will obtain the information it needs to enforce consumer use tax compliance. Vendors that fail to comply with either option will be heavily penalized.
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