In June, the U.S. Supreme Court decided in the case of South Dakota v. Wayfair, Overstock, and Newegg to redefine sales tax nexus. Overturning the physical nexus requirement previously established by the 1992 Quill v. North Dakota decision, the Supreme Court ruled that states can legally collect tax from remote retailers deemed to have “economic nexus.”
Given that this decision represents a major departure from existing sales tax nexus precedent, retailers may have questions about what Wayfair will mean for their business. The decision specifically applies to South Dakota’s S.B. 106, a law enacted in 2016 that requires remote retailers that transact $100,000 in sales or 200 separate transactions in South Dakota to collect and remit sales tax to the state. The decision also enables states with economic nexus laws already on the books to enforce collection by remote retailers, and has prompted other states to adopt such laws.
The South Dakota decision represents a significant victory for bricks-and-mortar retailers. It is the culmination of 20 years of work by the American Booksellers Association, bookstore members, and a wide array of retail coalitions, which advocated that states level the playing field by requiring remote retailers with significant sales into a state collect and remit sales tax. The first state to pass an e-fairness law was New York State, in 2008, which required out-of-state retailers doing more than $10,000 per year in affiliate sales to collect and remit sales tax.
Moving forward, ABA believes it is crucial that states passing e-fairness laws follow South Dakota’s example and set realistic minimum thresholds. According to David Grogan, ABA Director of ABFE, Advocacy and Public Policy, “The spirit of the South Dakota law is not to tax a business that does occasional business across state lines but to go after companies whose business model is clearly predicated on doing significant sales in other states.”
States with economic nexus laws currently in effect include Alabama, Hawaii, Indiana, Kentucky, Louisiana, Maine, Massachusetts, Mississippi, South Dakota, Tennessee, Vermont, and Wyoming. Connecticut, Illinois, Iowa, Kentucky, North Dakota, Wisconsin, and Georgia have all recently passed economic nexus laws that will take effect in upcoming months. Other states, including Oklahoma, Pennsylvania, Rhode Island, and Washington, have notice and report laws that give retailers with economic nexus in those states the option to either collect and remit sales tax or notify their customers that they owe use tax to the state.
The specific thresholds a retailer must meet to constitute economic nexus vary by state. TaxJar has provided an overview of each state’s economic nexus law. Additionally, resources available to help facilitate sales tax collection differ between states. For example, states that belong to the Streamlined Sales and Use Tax Agreement (SSUTA) offer software to aid small businesses in calculating sales tax; 24 states currently belong to the SSUTA. The SSUTA provides a list of state contacts for remote retailers that would like to determine whether they must register to collect tax in any member or non-member state.
On the federal level, the proposed Marketplace Fairness Act would authorize member states under the SSUTA to require sellers with annual gross receipts in total U.S. remote sales of at least $1 million to collect and remit state sales tax on remote sales.
As state and federal legislatures begin to enact economic nexus laws like that of South Dakota, efforts to supersede the Wayfair decision have also emerged. U.S. Senators from states that do not collect sales tax, Jon Tester (D-MT), Jeanne Shaheen (D-NH), and Maggie Hassan (D-NH), introduced the Stop Taxing Our Potential Act following the Supreme Court decision. In New Hampshire, the state legislature held a special session last week to consider draft legislation that would have prevented other states from requiring New Hampshire-based retailers to collect and remit tax to those states. While the proposed legislation passed unanimously in the state Senate, it failed to pass the House.
ABA’s advocacy division will continue to monitor and report on the implications of the Wayfair decision for independent booksellers. Watch Bookselling This Week for updates.