Do States Like to Watch Remote Sellers Scramble?
Some states are in danger of getting a bit of a reputation with the dramatic changes in sales tax post Supreme Court Wayfair Inc. ruling.
Take New York. In January 2019, the New York State Department of Taxation and Finance revealed it would use the power vested in it by the United States Supreme Court decision in South Dakota v. Wayfair, Inc. (June 21, 2018) to “immediately” enforce “certain existing provisions in the New York State Tax Law that define a sales tax vendor.” In other words, certain remote vendors could be liable for tax on their New York sales dating back to June 21, 2018.(Note to the New York tax department: That’s the kind of thing a remote vendor would prefer to be informed of before June 2018, not in January 2019.)
Then, on May 31, 2019, the tax department announced (TSB-M-19(2)S) New York tax law requires “marketplace providers to collect sales tax on taxable sales of tangible personal property that they facilitate for marketplace sellers” effective June 1, 2019. In other words, this new requirement was in effect the very next day, which was a Saturday.(Note to the New York tax department: That’s the kind of thing marketplace providers and sellers would prefer to be informed of before May 31, 2019.)
The notice explains that marketplace providers must comply with the collection requirement if they have a physical presence in New York or economic nexus with the state. Economic nexus is established for marketplace facilitators if, in the previous four sales tax quarters, they have more than $300,000 in cumulative gross receipts from sales of tangible personal property made or facilitated in New York and they made or facilitated more than 100 sales of tangible personal property delivered in the state.
To be fair, the June 1, 2019, effective date is clearly stated in New York Senate Bill 1509, enacted April 12, 2019 — though the first iteration of the measure listed September 1, 2019, as the effective date. Vigilant businesses may have been able to see this coming. Furthermore, marketplace providers affected by this change should probably already be collecting and remitting New York sales tax on their own sales in the state, if not their third-party sales, per the January 2019 announcement discussed above.
But that also means the tax department has had since April 12, 2019, to notify marketplace providers of the imminent change. So why would it wait until the day before? It’s a puzzle.
California and Vermont: New York’s kindred sales tax spirits
Whatever the reason, New York isn’t the only state to wait until the last minute to change the rules on remote sellers.
The California Department of Tax and Fee Administration announced in December 2018 that it would require out-of-state sellers with economic nexus in the state to collect and remit California use tax starting April 1, 2019. That same date, in-state sellers with economic nexus in another district would be required to collect and remit applicable district taxes. To be in line with the Supreme Court decision in South Dakota v. Wayfair, Inc., the economic nexus threshold was set at $100,000 sales in the state or 200 transactions.
Almost immediately, the California Assembly introduced legislation that would raise the sales threshold to $500,000 and eliminate the transactions threshold altogether. Lawmakers voted unanimously in favor of the proposed change at every opportunity, and yet the bill wasn’t enrolled and presented to the governor until April 15, 2019 — more than two weeks after economic nexus took effect with the $100,000 sales/200 transaction threshold. The governor then waited another 10 days to sign it.
Similarly, Vermont lawmakers spent months considering a sales tax collection obligation for marketplace facilitators. On June 4, 2019, they sent House Bill 536 to Governor Phil Scott, who promptly signed it. The law requires marketplace facilitators who have nexus with Vermont to collect and remit Vermont sales tax on behalf of third-party sellers starting June 1, 2019. Really?
I understand that lawmakers have a lot on their plates, and I sure wouldn’t want to administer taxes for the gargantuan states of California or New York, or even the much smaller Vermont. But come on, states. We’re doing our best to keep up with the many sales tax changes resulting from the Wayfair decision. Do us all a solid and give us more of a heads-up. Please.
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Gail Cole is a Senior Writer at Avalara. She’s on a mission to uncover unusual tax facts and make complex laws and legislation more digestible for accounting and business professionals — or anyone interested in learning about tax compliance.