When a state’s remote sales tax threshold is at odds with itself – Wacky Tax Wednesday

Update 6.28.2019: The New York Department of Taxation and Finance confirms that the threshold is $500,000 and 100 transactions. Further clarification: You are a marketplace provider unless you can show that you don't meet one of the thresholds ($500,000 in sales or 100 transactions). If you meet the definition of a marketplace provider, you have economic nexus if you meet both thresholds ($500,000 in sales and 100 transactions). Silly me for being confused.

More than 40 states have passed laws requiring remote sellers with a certain amount of economic activity in the state (economic nexus) to collect and remit sales tax. All allow an exception for small remote sellers. What makes a seller small enough to qualify varies from state to state but always depends on the amount of sales and/or transactions the remote seller has in the state during a given time period.

Whether that’s “and” or “or” matters.

Approximately half of the states with economic nexus have modeled their small seller exceptions on South Dakota’s, which is more than $100,000 in sales in the state or at least 200 transactions in the current or previous calendar year. (Why mimic South Dakota? Find out here.)

However, other states do have different thresholds. For example, both California and Texas count sales only and have a sales threshold of $500,000. Connecticut's is at least $250,000 and 200 or more retail sales and systematic solicitation of sales in the state via the internet or other means. Arizona’s threshold is based on sales only and varies year to year (more than $200,000 for calendar year 2019, $150,000 for calendar year 2020, and $100,000 for calendar year 2021 and beyond). And so forth.

It’s essential that businesses have a clear understanding of the threshold: If they surpass it, they’re required to register with the state and collect and remit sales and use tax. They can’t know if they’ve crossed the threshold if they don’t know exactly what the threshold is.

Unfortunately, determining the threshold isn’t always as easy as you might think.

Case in point: According to the New York Department of Taxation and Finance’s Registration requirement for businesses with no physical presence in New York State and  FAQs related to registration requirement for businesses with no physical presence in NYS, a business with no physical presence in the state is presumed to establish economic nexus if, for the immediately preceding four sales tax quarters:

• The cumulative total of the business’s gross receipts from sales of tangible personal property delivered into the state exceeded $300,000, and
• The business made more than 100 sales of tangible personal property delivered in the state.

That’s lifted directly from the department webpages, bold “and” and all.

The bold “and” leaves no room for doubt. Doubt entered the picture when the New York State Assembly added a sales and use tax collection requirement for marketplace facilitators, then later amended it.

The enactment of Senate Bill 1509 this spring imposed a sales tax collection requirement on remote marketplace providers that made or facilitated $300,000 in sales in the state or 100 sales of property delivered into New York during the immediately preceding four quarterly periods. [Emphasis mine.] The provision took effect June 1, 2019.

It seems the New York Department of Taxation and Finance wasn’t informed. The bulletin Sales Tax Collection Requirement for Marketplace Providers states that both thresholds must be met:

• The cumulative total of the person’s gross receipts from sales made or facilitated of tangible personal property delivered into the state exceeded $300,000, and [emphasis mine]
• Such person made or facilitated more than 100 sales of tangible personal property delivered in the state.

The recent enactment of Senate Bill 6615 increased the sales threshold for remote vendors and marketplace providers from $300,000 to $500,000, and adds to the threshold confusion by referencing both $500,000 and 100 transactions and $500,000 or 100 transactions. In the same paragraph, no less (see Part J).

Further down, the bill references the $500,000 sales or 100 transactions threshold with respect to marketplace providers.

It’s a pickle, at least for businesses trying to determine if they have economic nexus and an obligation to collect New York sales and use tax.

The New York State Department of Taxation and Finance has been alerted and is looking into the matter. When we know more, we’ll update this blog.

It’s worth adding that threshold differences between states don’t only hinge on and/or. Each state bases its threshold on different transactions. Some include only taxable sales, some include services while others don’t, some include electronically transferred products while others don’t. And so on. In other words, determining the threshold is always a bit challenging. When you’re not sure whether to include sales and transactions or sales or transactions, it’s more so.

Want to know more? State-specific economic nexus information is available in Avalara’s state-by-state guide to economic nexus laws.