Idaho plays hard ball with non-collecting remote retailers
In the spring of 2018, Idaho adopted a click-through nexus law that imposes a tax collection obligation on remote sellers who generate a certain amount of Idaho sales through referrals from in-state businesses. It took effect July 1, 2018, but some remote retailers may not realize that. The Idaho State Tax Commission recently contacted 500 non-compliant out-of-state sellers to remind them of their obligation to collect and remit Idaho sales tax.
Under the new law, an out-of-state seller must comply with Idaho sales tax laws if:
- It has an agreement with an Idaho seller to refer potential buyers to the seller for a commission paid on resulting sales; and
- Total sales from such referrals to Idaho buyers exceed $10,000 in the preceding 12 months.
The Tax Commission published a thorough explanation of the new requirements in early August. It explains that referrals may be a link on an internet website, written or oral presentation, or any other similar type of referral (the mere placement of an advertisement is not considered a referral). It also describes several possible sales scenarios, explaining whether a tax collection obligation has been triggered in them.
500 companies contacted
According to Renee Eymann of the Idaho State Tax Commission, the commission used “available information” to select the 500 companies it contacted. These businesses are a mix of online and brick-and-mortar sellers that are based in other states but “may meet the law’s requirements to collect Idaho sales tax.” Retailers from Oregon, a state with no general sales tax, were among the 500 (hat tip to The Argus Observer).
Tax Commission carefully analyzing Wayfair decision
Numerous states have adopted click-through nexus in an effort to increase remote sales tax collection (see a list of them here). Yet economic nexus — basing a sales tax collection obligation on economic activity in a state — may prove the more effective tool.
On June 21, 2018, the Supreme Court of the United States ruled that physical presence is no longer the only prerequisite for a tax collection obligation. In repealing the decades-old physical presence standard (last upheld by the court in 1992 in Quill Corp. v. North Dakota), the South Dakota v. Wayfair, Inc. opinion authorizes states to tax remote sales.
The Wayfair ruling is quite broad. It regards South Dakota’s economic nexus law, which imposes a tax collection obligation on out-of-state sellers that have 200 or more sales transactions in the state in the current or previous calendar year, or more than $100,000 in gross revenue from the same. The court ruled merely that “the physical presence rule of Quill is unsound and incorrect.”
Yet the court also highlighted three aspects of South Dakota’s tax system “that appear designed to prevent discrimination against or undue burdens upon interstate commerce.” These are:
- There is an exception for small sellers
- Retroactive enforcement of the law is prohibited
- South Dakota is a member of the Streamlined Sales and Use Tax Agreement, which “standardizes taxes to reduce administrative and compliance costs”
South Dakota has yet to enforce its law; the case was remanded to state courts for further proceedings. However, numerous states have adopted similar economic nexus provisions, and some are currently enforcing them. You’ll find a list of states with South Dakota–style economic nexus here.
While upping its efforts to enforce click-through nexus, the Idaho State Tax Commission is “carefully analyzing how the U.S. Supreme Court’s recent ‘Wayfair’ ruling affects out-of-state retailers making sales to Idaho citizens.” It’s particularly interested in potential legal challenges to Wayfair: “The agency … continues to follow developing legal issues related to the court’s decision.”
Is the Tax Commission considering an economic nexus provision of its own? Time will tell. In the meantime, it’s intent on upholding its existing click-through nexus law.
The 2021 sales tax changes report: midyear update
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