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States to watch in the wake of the South Dakota v. Wayfair, Inc. Supreme Court ruling


ecommerce-south-dakota-v-wayfair

Updated 8.15.2018 to reflect latest developments in state laws.

Now that the Supreme Court has ruled in favor of the state in South Dakota v. Wayfair, Inc., many businesses are wondering how the decision will impact their sales and use tax obligations in other states.

The court ruled on June 21, 2018: “Because the physical presence rule of Quill is unsound and incorrect, Quill Corp. v. North Dakota … and National Bellas Hess v. Department of Revenue, Ill., … are overruled.” It vacated the judgement of the Supreme Court of South Dakota — that the state’s economic nexus law is unconstitutional — and remanded the case “for further proceedings not inconsistent with this opinion.”

This is likely to have different effects in different states, and it will take time for states to sort it all out. According to Andy Gerlach, Secretary of the South Dakota Department of Revenue, “the state will offer guidance to out-of-state online retailers after reviewing the opinion.” Similarly, the Minnesota Department of Revenue issued a press release informing taxpayers of the SCOTUS ruling and stating, “We are analyzing the Court’s decision to identify how it affects Minnesota and online retailers, remote sellers, and marketplace providers.” It promised to provide additional guidance within 30 days.

In the meantime, some states should be watched more closely than others. These are states with economic nexus, non-collecting seller use tax reporting, marketplace sales taxes, and cookie (software) nexus. States with affiliate and click-through nexus should also be monitored.

States with economic nexus

South Dakota v. Wayfair, Inc. centered on South Dakota’s economic nexus law, which challenges the physical presence standard upheld by the Supreme Court in Quill Corp. v. North Dakota (1992). Quill held that a state may not tax sales by a seller with no physical presence in the state. Under South Dakota’s economic nexus law, economic activity alone (at least $100,000 in gross revenue or 200 transactions in a year) triggers a tax collection obligation; no physical presence is needed.

In accepting the South Dakota case, the court agreed to reconsider Quill. In ruling in favor of South Dakota, it overturned the physical presence standard upheld by Quill and Bellas Hess (an earlier ruling). This paves the way for states to impose a tax collection obligation on businesses that have no connection to the state other than a certain amount of economic activity.

States that have adopted or considered economic nexus policies similar to South Dakota’s (see chart below), therefore, should be closely watched.

States with non-collecting seller use tax reporting

While the Supreme Court expressly prohibited states from taxing sales by sellers with no physical presence in the state in Quill, it allowed Colorado to impose use tax notice and reporting requirements on non-collecting sellers in Direct Marketing Association v. Brohl (2015).

Since Colorado began enforcing use tax reporting for non-collecting sellers in July 2017, several other states have adopted similar policies. If nothing else, these requirements have proven effective in encouraging non-collecting sellers to register and collect.

Now that the court has ruled in favor of South Dakota, states with and without use tax reporting laws should be monitored. Will states with use tax reporting continue to rely on it? Will those without use tax reporting requirements for non-collecting sellers adopt them?

States with marketplace sales taxes

A growing number of states now require marketplace facilitators like Amazon, eBay, Etsy, and Walmart to collect and remit taxes on behalf of their third-party (marketplace) sellers. To encourage compliance, these states give marketplace sellers a choice: Collect the tax or comply with use tax notice and reporting for non-collecting sellers.

Like all sales and use tax laws, the taxes imposed on marketplace sellers vary by state. Facilitators may have to have a physical presence in the state, like a warehouse or fulfillment center, or they may simply have to do a certain amount of business in the state. Regardless of the specifics, these laws seem to be getting results: Large marketplaces are complying with them in at least two states — Pennsylvania and Washington. Little wonder several other states have adopted this type of law.

It remains to be seen how the Supreme Court’s abrogation of the physical presence standard will impact these laws.

States with cookie (software) nexus

A handful of states maintain an out-of-state business develops a physical presence in a state when it places software or web cookies on in-state computers and devices to enhance or facilitate sales. Like economic nexus laws, state cookie nexus laws have been challenged.

States with these policies in place should be watched now that the Supreme Court has ruled physical presence is not a prerequisite for tax collection. Some of these laws are tied to economic nexus.

We can’t provide tax advice in this blog, but we can share what we know. Read on for a list of state remote sales tax laws as of June 2018. Dates listed are the effective dates of the policy; however, enforcement of the laws may be affected by the recent Supreme Court ruling. We’ll update the list as we know more.   

State

Economic Nexus

Use Tax Reporting

Marketplace Tax

Cookie Nexus

Other

Alabama

10.1.2018

(statutory start date is 1.1.2016)

7.1.2017

 

1.1.2019

 

 

2012

(affiliate)

Arizona

 

 

9.20.2016

 

 

 

Arkansas*

 

 

 

 

2011

(affiliate / click-through)

California

 

 

 

 

2012

(affiliate / click-through)

Colorado

 

7.1.2017

 

 

 

2014

(affiliate / click-through)

Connecticut*

12.1.2018

 

7.1.2019 - for referrers

12.1.2018

 

 

2011

(affiliate / click-through)

Florida*

 

 

 

 

 

Georgia

1.1.2019

 

1.1.2019

 

 

 

2012

(affiliate / click-through)

Hawaii

7.1.2018

 

 

 

 

 

Idaho

 

 

 

 

7.1.2018

(click-through)

Illinois

10.1.2018

 

 

 

 

2011

(affiliate); 2015

(click-through)

Indiana

10.1.2018

 

 

 

 

 

 

Iowa

1.1.2019

 

1.1.2019

 

1.1.2019

 

1.1.2019

 

2013

(affiliate)

Kansas

 

 

 

 

2013

(affiliate / click-through)

Kentucky

10.1.2018

 

7.1.2013

 

 

 

 

Louisiana

1.1.2019

7.1.2017

 

 

 

2016

(affiliate / click-through)

Maine

7.1.2018

 

 

 

 

2013

(affiliate / click-through)

Maryland*

 

 

 

 

 

Massachusetts

 

 

 

10.1.2017

 

 

Michigan

9.30.2018

 

 

 

2015

(affiliate / click-through)

Minnesota

10.1.2018

 

7.1.2019

Additional guidelines to be provided within 30 days of SCOTUS ruling

 

2013

(click-through)

7.1.2019 (affiliate)

Mississippi

9.1.2018

 

 

 

 

Missouri

 

 

 

 

2013 (affiliate / click-through)

Nebraska*

1.1.2019

 

 

 

 

Nevada

 

 

 

 

2015

(affiliate / click-through)

New Jersey

10.1.2018

 

 

 

2014

(click-through)

New Mexico*

 

 

 

 

 

New York*

 

 

 

 

2008

(affiliate); 2008 (click-through)

North Carolina*

11.1.2018

 

 

 

2009

(click-through)

North Dakota

10.1.2018

 

 

 

 

 

Ohio

 

 

 

1.1.2018

 

2015

(affiliate /  click-through)

Oklahoma

 

7.1.2018

(adds to existing requirements)

7.1.2018

 

 

2016

(affiliate)

Pennsylvania

 

3.1.2018

(additional requirements 4.1.2019)

3.1.2018

(additional requirements 4.1.2019)

 

2011 (affiliate / click-through)

Rhode Island

 

 

8.17.2017

 

8.17.2017

 

8.17.2017

 

8.17.2017

(affiliate / click-through)

South Carolina*

 

 

 

 

 

South Dakota

5.1.2016

(under an injunction until further notice)

 

2011

 

 

 

 

Tennessee

7.1.2017

(under an injunction until further notice)

 

 

 

 

2014 (affiliate); 2015 (click-through)

Texas

 

 

 

 

2012

(affiliate)

Utah*

1.1.2019

 

 

 

2012

(affiliate)

Vermont

 7.1.2018

7.1.2017

See also

 

 

2015 (click-through)

Virginia

 

 

6.1.2017

(responsibility is on marketplace seller)

 

2013 (affiliate)

Washington

7.1.2017 (for B&O tax)

10.1.2018 (for remote transactions)

1.1.2018

 

1.1.2018

 

 

2015 (click-through)

West Virginia

 

 

 

 

2014

(affiliate)

Wisconsin*

10.1.2018

 

 

 

 

Wyoming

7.1.2017

(under an injunction until further notice)

 

 

 

 

 

Washington, D.C.

 

 

 

 

 


Avalara Author
Gail Cole
Avalara Author Gail Cole
Gail Cole began researching and writing about sales tax for Avalara in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.