Money keeps flowing into states thanks to Supreme Court’s 2018 sales tax ruling
- Jan 20, 2020 | Gail Cole
Sales tax revenue is reportedly on the rise in many states due to an increase in remote sales tax collections. And states that are members of the Streamlined Sales and Use Tax Agreement seem to be especially benefitting from new taxes on online sales.
All states won the right to tax remote sales when the Supreme Court of the United States overruled a longstanding physical presence rule in its decision on South Dakota v. Wayfair, Inc. (June 21, 2018). Most, including all 24 Streamlined Sales Tax (SST) member states, now require out-of-state businesses that meet certain thresholds to collect and remit sales tax. As a result, their coffers are filling.
South Dakota v. Wayfair, Inc., the gift that keeps on giving
Until the Wayfair ruling, states lacked the authority to impose a sales tax collection obligation on out-of-state sellers with no physical presence in the state. The Supreme Court had determined in Quill Corp v. North Dakota (1992) that state and local sales tax compliance was too burdensome to impose on remote retailers: Physical presence in a state was therefore a requisite for sales tax collection.
Wayfair overruled the physical presence rule, granting states the right to base a sales tax obligation solely on a remote seller’s economic activity in the state, or economic nexus. The decision didn’t eliminate the physical presence rule — having a physical presence in a state still triggers a sales tax obligation. Rather, it expanded state taxing authority.
Since the Wayfair decision, 43 of the 45 states (plus Washington, D.C.) that have a statewide sales tax have adopted economic nexus. In all but Louisiana, which won’t start enforcing economic nexus until later this year, economic nexus policies are helping to increase state revenues.
- Arizona’s economic nexus law generated a whopping $51.5 million in transaction privilege tax revenue during its first two months (it took effect October 1, 2019).
- California expects to bring in an additional $554 million in tax revenue in 2019–20 and $664 million in 2020–21 thanks to the Wayfair decision and the state’s economic nexus and marketplace facilitator laws.
- Texas state sales tax collections increased by 6% for the three months ending December 2019 over the same period in 2018. Comptroller Glenn Hegar attributed some of that growth to remote sales tax, though he also said the shortened holiday shopping period had depressed retail sales tax growth.
SST member states are particularly well positioned to reap the benefits of Wayfair. According to Craig Johnson, executive director of the Streamlined Sales Tax Governing Board, anecdotal evidence suggests sales and use tax collections in SST states have increased between 50% and 100% since Wayfair (hat tip to Bloomberg Tax).
The increase in revenue isn’t surprising. At the time of the Wayfair ruling, there were about 3,9000 active retailers registered to collect and remit sales and use tax in SST states through the Streamlined Sales Tax Registration System (SSTRS). Johnson says that as of January 17, 2019, there are over 8,975 active retailers registered, and more are coming on every month.
Some of the many benefits to registering through the SST include:
- You can register in one or all SST states with one application
- You can easily update your registration information for all states where you registered through the SSTRS
- You may use an SST Certified Service Provider (CSP) and Certified Automated System
- You may qualify to receive CSP services free of charge
Businesses qualifying as a volunteer seller may qualify for free sales tax calculation and reporting services from an SST Certified Service Provider. SST states compensate CSPs for providing software and services to volunteer sellers.
Avalara is a CSP in SST states and Pennsylvania, which independently runs a similar program. Learn more about the benefits of registering through the SST.