Maryland responds – cryptically – to Wayfair ruling

Maryland responds – cryptically – to Wayfair ruling

Update, 8.30.2018: Maryland has approved an emergency regulation imposing a tax collection obligation on vendors with more than $100,000 in sales or 200 or more transactions into Maryland. It will take effect October 1, 2018. Additional details will be available once the Maryland Comptroller publishes a tax alert on the topic.

The Comptroller of Maryland has published a tax alert regarding the United States Supreme Court’s decision in South Dakota v. Wayfair, Inc. It’s the state’s first response to the ruling that removes the physical presence limitation and allows a state to tax out-of-state sellers based solely on their economic activity in the state. Maryland has promised to provide more guidance, which is good: This first round sparks more questions than it answers.

Unlike many states, Maryland hasn’t enacted an economic nexus law like South Dakota’s. According to the notice, the Comptroller imposes sales tax collection requirements “as broadly as is permitted under the United States Constitution.”

Prior to the Wayfair ruling (June 21, 2018), physical presence was as broad as it got. Any state that tried to impose a tax collection obligation on a business with no physical presence in the state was challenged and lost. Until South Dakota.

The Wayfair ruling doesn’t create a bright-line test like physical presence. It merely states that the physical presence rule is “unsound and incorrect,” and that in South Dakota v. Wayfair, Inc., “the economic and virtual contacts respondents have with the state” are a sufficient basis for nexus (the connection between a state and business that triggers a tax collection obligation).

This leaves a lot open to interpretation, and states are working to determine the ruling’s impact on their sales tax laws now. Three (Hawaii, Kentucky, and Vermont) have already begun enforcing economic nexus. Several others have announced they’ll start enforcement in the near future — many on October 1, 2018, or January 1, 2019. See a list of states with economic nexus laws and their effective dates here.

But back to Maryland. The comptroller advises businesses that sell or deliver tangible personal property or taxable services for use in Maryland to “review and analyze the United States Supreme Court’s decision in South Dakota v. Wayfair, Inc. to identify how it affects you.” In case that leaves taxpayers at a loss, it helpfully provides a link to the opinion.

What the Maryland Comptroller doesn’t say

The Maryland Comptroller doesn’t say exactly when out-of-state sellers need to start collecting and remitting tax. It states, “If you will make sales in Maryland, you will need to obtain a sales and use tax license.”

It also doesn’t say whether there is a small seller exception. South Dakota’s economic nexus law only applies to out-of-state businesses with more than $100,000 in gross revenue from the sale of tangible personal property, electronically transferred products, or services delivered into the state in the current or previous calendar year, or 200 or more separate transactions of the same.

However, the notice does alert Maryland-based vendors to the fact that they “may also be required to collect and remit sales tax to other states” as a result of the Wayfair ruling. Those with questions are advised to contact other state departments of revenue.

You’ll find the Maryland notice here.

What this means for sellers doing business in Maryland

If you make sales in Maryland and don’t collect and remit tax on those sales, don’t ignore this notice. Speak with a tax advisor about if or when you should register to do business in Maryland. The team at Avalara Professional Services can help.

Learn more about South Dakota v. Wayfair and what it could mean for your business here. We’re updating this page as more states respond to the ruling.

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