US Congress bill to curb out-of-state Sales Tax Jan 2019

US legislators in Congress are to consider two bills providing for a consistent imposition of the ‘economic nexus’ Sales Tax test, including a $10million annual sales threshold. This follows the Supreme Court South Dakota vs Wayfair, Inc ruling which freed states to oblige out-of-state e-commerce sellers to collect state Sales Tax. Only South Dakota and Maine prohibit the state from applying retrospective taxes.

To date, 27 states have enacted an economic nexus test with 15 imposing of these introducing the new requirements from 1 October.

The bipartisan draft House legislation, Online Sales Simplicity and Small Business Relief Act, introduced on 13 September, has been introduced to bring some order to the imposition of the remote obligations and prevent retrospective Sales Tax charges. Key elements include:

• Introduce remote sellers’ Sales Tax obligations from 1 January 2019.
• No retrospective imposition of Sale Tax obligations.
• Sales thresholds for exempting small businesses from having to register. This includes an immediate $10million sales threshold per state until the states can agree with Congress on a collection process that will limit compliance costs for collections and reporting.

In a similar vein, Ohio Representative Bob Gibbs has introduced the Protecting Small Business from Burdensome Compliance Costs Act of 2018.

The June 2018 Wayfair case added a new rule, ‘economic nexus’, to determine if a retailer from another US state or country was required to levy and collect Sales Tax. Previously, following the 1992 Quill v North Dakota ruling, only a physical presence would trigger taxing requirements. States had interpreted this widely, from having premises and employees in state through to just having visiting sales staff.

Following the Wayfair decision, over 25 states have moved to update and adjust their legislation to reflect the Supreme court ruling, including introducing annual sales registration thresholds – South Dakota requires more than $100,000 sales or above 200 individual transactions per annum.

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