Is Sales Tax Economic Nexus Simplification on the Horizon?

Alex Forbes
April 10, 2019

A topic of conversation on the recent Sovos and Deloitte Tax LLC webinar, “The Speed of Sales Tax – How to Stay Ahead of Changing Regulations in 2019,” was whether or not states will seek further economic nexus simplification.

State of sales tax economic nexus

Currently, there are 36 states enforcing sales tax economic nexus rules. While many of these states are streamlined sales tax (SST) states, a good number of them are not. Whether these non-SST states will be determined to create an undue burden still remains to be seen.

California began enforcement April 1, 2019, while Texas is holding out until October 2019. There are still eight states, including Arkansas [Update 4/12: Arkansas enacts economic nexus law], Arizona, Florida, Idaho, Kansas, Missouri, New Mexico and Virginia, without sales tax economic nexus rules. Those dominoes will fall eventually, whether this year or next, according to our webinar panel. For example, New Mexico House Bill 6 has been enacted and is scheduled to create economic nexus July 1, 2019. Virginia House Bill 1722, also scheduled to pass July 1, will create economic nexus there. Kanas, on the other hand, has a bill before the governor, but the panel is not confident it will have an economic nexus standard there in the immediate future, believing it will be vetoed.

In Missouri, a very complicated taxing jurisdiction, there are a number of bills currently being debated and the state may be working on something for this year, while Tennessee is still in litigation.

Remote seller nexus simplification on the horizon?

South Dakota created the standard of 200 transactions or $100,000 in gross sales as the barrier to trigger an economic nexus registration and collection requirement after the South Dakota v. Wayfair decision. Our panel reiterated that there’s no magic in those numbers, but when the first states started to enact an economic nexus standard, they used those same numbers, viewing them as a bit of a safe harbor even though they were never intended as one.

A few states that initially enacted a 200 transaction, $100,000 in gross sale threshold are in legislation this year looking to potentially change that threshold as they bolster their rules by statute. For example, California may be changing to a $500,000 threshold, while North Dakota and Washington are following a trend of eliminating the number of transactions threshold and going simply with a gross sale type standard.

When asked if the panel was seeing a trend of states eliminating the number of transactions when adopting Wayfair economic nexus rules, an example of where things become murky came readily to mind:

Not all states count the number of transactions and sales the same way. For most states, a gross sales number is used as a proxy for economic presence. Others will count only taxable sales, some just retail sales, which could create exclusions for a lot of companies. Kentucky counts sales of products and digital property but not necessarily services or anything else. Illinois counts product sales including exempt sales, but not exempt sales for resale.

Chuck Maniace, director of regulatory analysis, Sovos, sees this as a practical concern, meaning these states recognize that to register a taxpayer and to process their tax return every single month is not a completely substantial burden. They’re trying to exclude from this process those businesses that may technically have an obligation but may not be particularly fruitful in the amount of revenue they bring.

Washington state, where taxing is based on amounts of retail sales as part of legislation that eliminated the 200 transaction threshold, is going to be moving from gross receipts on retail sales to cumulative gross income on January 1, 2020.

For further details about remote seller nexus simplification, such as what Alabama, Colorado and Louisiana and doing, where there may be undue burden and places that are ripe for challenge, view the webinar recording and download the slides.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Alex Forbes

Alex Forbes is Senior Manager, Content Marketing, at Sovos. When not helping readers navigate their tax-related digital business transformation journeys, he enjoys day tripping around New England with his wife.
Share This Post

EMEA VAT & Fiscal Reporting
September 17, 2019
Why Storage of Electronic Invoices in the EU Gets Complicated Quickly

It’s very possible that US companies are breaking laws governing storage of electronic invoices in the European Union without realizing they’re putting themselves at risk for financial penalties.  The EU is an entity that, as the Brexit debate has shown, can frustrate and baffle its own citizens. In the US, the EU is frequently misunderstood. […]

Tax Information Reporting United States
September 16, 2019
6 Reasons You Should Attend the 2019 GCS Intelligent Reporting Summit

The tax information reporting event of the year is coming in October! Sovos will present the 2019 GCS Intelligent Reporting Summit in San Antonio Oct. 28-30. You can’t afford to miss it! Here’s why:  NEW! Unclaimed Property Regulations: De-mystify unclaimed property reporting and learn how to protect your company from risk you might not even […]

Tax Information Reporting United States
September 13, 2019
California AB5 Gig Economy Bill will Affect Tax Reporting, But How?

California Governor Gavin Newsom is poised to sign into law a bill that would recategorize gig economy workers such as ride-share drivers from being independent workers to full-time employees.  The bill, California AB5, could have a profound impact on tax withholding and information reporting at state levels, with other states closely monitoring California’s activity. It […]

Sales & Use Tax United States
September 12, 2019
New Sales Tax Laws Require Ecommerce Retailers to Step up Cyber Monday 2019 Preparations

5 steps ecommerce retailers should take to prepare for Cyber Monday 2019 Retailers with ecommerce channels have a lot to gain during Cyber Monday or Cyber Week in 2019. According to BlackFriday.com, Cyber Monday spending is anticipated to grow 20% this year, with consumers spending nearly $9.5 billion online. Cyber Monday also falls on December […]

EMEA IPT
September 5, 2019
Location Location Location

EU and local legislation Location of risk is one of the key criteria an insurer must identify and consider before thinking about insurance premium taxes. It’s important to understand the location of risk rules and apply them correctly to be able to settle insurance premium taxes compliantly and to the correct tax authority. Whilst location […]