Sales Tax Obligations, Economic Nexus for DtC Shippers

Delaney McDonald
April 14, 2020

Sales tax always has been, and always will be, an integral part of compliance for wineries, especially for those shipping direct-to-consumer (DtC). In recent years the standards for determining who is obligated to collect sales tax and at what rates has changed due to evolving legislation like the Supreme Court case South Dakota v. Wayfair.  

When a winery wants to ship wine DtC to a particular state, it must obtain a shipping license or permit for that state. This becomes more complicated if the state requires a winery to “voluntarily” accept a sales tax obligation in order to receive the DtC shipping license. Since DtC shipping circumvents retail stores—where sales tax would normally be collected, the state can still ensure their revenue with this requirement.

Multiple layers of tax compliance

Collecting sales tax can be complicated. Each state has the power to determine its own laws and regulations in terms of sales and excise tax rates, exemptions, and remittance. The 21st Amendment gives states even more power to tax and regulate alcohol at their discretion. Depending on the state, wine may be taxed at a different rate than all other items such as food and general merchandise, or not subject to sales tax at all. 

Wineries are generally required to collect local tax in addition to the base state rate in every state where they are registered for a sales tax license or permit. Once a seller is registered for sales tax with a state, that seller is required to continue submitting returns indefinitely, even when no sales tax is due, until the state expressly releases the retailer from responsibility.

In order to be compliant, wineries must keep up with state and local rates across all relevant jurisdictions, which can be broken down to county, city or even street level. In 2019, Sovos processed over 900 sales tax rate changes in the United States, where there are already more than 12,000 economic nexus laws on the books. 

Assessing the proper sales and excise tax rates can be complicated when selling into multiple states. For example, in California the sales tax rate is 7.25 percent plus local rates (which in California as of May 2019 is calculated based on the destination address when goods are delivered to the end consumer) and the excise tax rate is $0.20 per gallon for still wine and $0.30 per gallon for sparkling wine. In New York the sales tax is 4 percent plus local rates and the excise tax is $0.30 per gallon. This is the contrast in rates when comparing just two states; every additional destination state can create an exponentially more complicated web of rates and rules to comply with, making it extremely difficult to manage manually.

What is economic nexus and does it affect DtC wine shippers? 

Economic nexus requires businesses selling in a particular state to collect and pay tax on the income generated in that state, regardless of physical presence. Each state’s nexus obligations are now based on sales revenue and transaction volume thresholds.

Standards for economic nexus vary by effective date, transaction count threshold, revenue threshold and measurement period depending on the state. This adds even more complexity to the already complicated rules and regulations surrounding sales tax for DtC wine shippers.

This can cause difficulty determining in which states you are responsible for collecting sales tax. For example, in California as of April 25, 2019 remote sellers regardless of transaction volume, that make more than $500,000 in revenue in the preceding or current calendar year meet the economic nexus thresholds and are responsible for collecting sales tax. But, in New York the rules are much more complicated. As a remote seller in New York, if you have more than 100 transactions and $500,000 in revenue in the four preceding sales tax quarters you are responsible for sales tax collection, effective as of June 24, 2019 with a retroactive date of June 21, 2018. In addition to applying nexus laws, many states are also discussing the possibility of retroactive enforcement. 

How to manage the varying sales tax obligations and reporting thresholds

Keeping track which states require sales tax obligation as a condition of obtaining a DtC shipping license, the varying sales and excise tax rates, and the new economic nexus standards can be very difficult to manage. It’s important to understand the revenue and transaction thresholds in each state as well as the effective dates and measurement periods to ensure you are collecting sales tax and properly reporting in every state where you meet the obligation standards.

Determining when your winery is responsible for collecting sales tax in a particular state, and then determining the correct sales and excise tax rates in the jurisdiction of the order’s final destination can be extremely complicated without an automated software solution. If economic nexus or sales and excise tax rates are not properly assessed and reported, it can lead to penalties, fines, or even loss of licensure. Making sure you are collecting the correct rates based off of destination with real-time sales tax determination and compliance checks will keep your winery protected.

Want to learn more about how to manage sales tax determination and reporting? Check out our latest white paper on real-time sales tax determination and compliance checks.

Sign up for Email Updates

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


Delaney McDonald

Share This Post

LATAM VAT & Fiscal Reporting
May 20, 2020
Sovos Acquires Taxweb, Extends Tax Determination Capabilities in World’s Most Challenging Compliance Landscape

Earlier this month Sovos announced its second acquisition of 2020, completing our solution for Brazil with an unparalleled offering that solves tax compliance in the place where it is most challenging to do so.  Too many companies doing business in Brazil have been burdened by managing multiple point solutions for continuous transaction controls (CTCs), tax […]

E-Invoicing Compliance EMEA Tax Compliance VAT & Fiscal Reporting
July 8, 2020
Turkey: Penalties for Noncompliance with the Mandatory Electronic Document Framework

For rules to carry any real weight, the rule-maker must combine compliance with that rule with either a carrot or a stick. In the field of tax legislation, the rule-maker, in this case, the legislator or the tax authority, almost always goes down the route of the stick in situations of noncompliance. And the penalties […]

ShipCompliant United States
July 2, 2020
Direct Wine Shippers Have a New Tax Burden in Chicago

As of July 1, 2020, wineries making direct-to-consumer (DtC) shipments of wine into the city of Chicago will face an additional tax burden. Under Chicago ordinance O2020-801, the city’s Liquor Tax will now apply to all sales of alcohol to consumers in the city.  What Is The Chicago Liquor Tax? Chicago has long imposed an […]

Tax Compliance Tax Information Reporting United States
July 2, 2020
New Educational Course: Tax Compliance and Accounting for Captive Insurers

Finding relevant insurance accounting education has always been a challenge for insurance professionals. Insurance is a global industry. But, the financial reporting and tax rules for insurance transactions represent only a small niche within the extensive realm of statutory and GAAP guidance.  Captive insurance companies are yet another niche within that, which only narrows the […]

Sales & Use Tax United States
July 1, 2020
New Rules for Remote Sellers in Louisiana

Beginning July 1, remote sellers making sales into Louisiana must register with the Louisiana Sales and Use Tax Commission for Remote Sellers (“the Commission”) in order to be compliant with new requirements to collect, remit and report state and local sales tax. The information below is intended to explain what companies will be impacted, what […]

Sales & Use Tax United States
July 1, 2020
Back to Basics: Seven Things You Need to Know About CSPs & SST

Sales & Use Tax is complex and growing more so by the day. The number of jurisdictions, tax forms and rate changes makes managing these processes enough to deplete the resources of even the most experienced accounting and finance teams.  States have been working to alleviate the burden on companies by providing programs that allow […]