As various levels of government try to figure about what the South Dakota v. Wayfair decision looks like in practice, it leaves a lot of uncertainty for sellers and their accountants on how to move forward.
For now, one of the best things we can do is look at the impact of the decision among the states and address seller reactions. In this article, however, we will stay focused on the state reactions.
State Responses to Wayfair
State reactions to the decision have, as you can imagine, varied widely. Several state departments of revenue have been highly communicative about the impacts of the Wayfair decision on existing legislation or have indicated they are reviewing the decision. From others, we have radio silence.
To jump in, let’s start with the states with economic nexus legislation. At the time of the decision, there were 18 states that had already passed economic nexus legislation and, in many cases, had an effective date prior to the Supreme Court ruling on June 21, 2018.
In the month leading up to the decision, another four states passed legislation. Since the decision, two states have passed or taken the position that their current legislation authorized remote seller collection authority and there are more in the wings that we are waiting on.
For instance, Hawaii, Kentucky, and Vermont were quick to announce a July 1, 2018 effective date for their economic legislation. Hawaii initially considered retroactive enforcement but walked back the idea in a July 10 announcement.
Despite a July 1 effective date, Kentucky recognized that sellers will need time and preparation to comply with collection requirements and on July 30 announced a new October 1 enforcement date.
Rhode Island also issued a July effective date with an amendment proposed through a regulation that goes into effect July 31. However, Rhode Island is holding firm that their notice and reporting provisions that were effective August 17, 2017 will be enforced.
October is a big month for effective dates. Alabama, Illinois, Indiana, Minnesota, North Dakota, and Wisconsin (plus the delayed Kentucky) all have October 1, 2018 effective dates. Alabama does not have a transaction threshold, only a dollar threshold of $250,000 of sales into the state.
Meanwhile, we have yet to receive additional guidance from Illinois. Litigation is pending on the Indiana economic nexus legislation and despite an October 1 effective date, the state will not enforce the law until the declaratory judgment action is resolved.
Minnesota has a slightly different threshold at $100,000 and 10 transactions or 100 transactions regardless of total sales amount. Minnesota’s law also requires marketplace providers in addition to remote sellers to start collecting sales tax by their effective date.
Like Kentucky, North Dakota noted that sellers need time to comply with its legislation and set this later effective date. Wisconsin did not pass specific remote seller legislation, but their definition of a retailer includes anyone not prohibited under the Constitution and will develop new standards by rule consistent with the Wayfair case.
Next up is Connecticut with a December 1, 2018 effective date. Connecticut is the only “and” state for their threshold – which they changed to $250,000 and 200 transactions (previously 100).
The 2019 contingent is Georgia, Iowa, Nebraska, and Utah effective January 1, 2019. Georgia hasn’t released additional guidance since the Wayfair decision.
It’s important to note that Iowa’s remote seller legislation includes cookie nexus (which doesn’t quite seem necessary) and marketplace facilitator collection, notice and reporting, click through, and expanded affiliate nexus. Nebraska is another state that did not pass specific economic nexus legislation. Look at Nebraska’s existing provision to see if you’re included as a remote seller engaged in business in the state.
Utah didn’t have economic legislation before Wayfair. The state held a special legislative session on July 24 and passed similar legislation to South Dakota.
Oklahoma, Pennsylvania, and Washington have both economic nexus and reporting requirements legislation, so if you’re below the small seller exception you can choose to comply with either. Oklahoma had a July 1, 2018 effective date but we have not heard from the Oklahoma Tax Commission.
We are also waiting on additional guidance from Pennsylvania, whose legislation has two different effective dates based on whether you sell TPP or digital goods. Washington is currently reviewing the decision and has two separate dates for sales tax and B&O tax.
For all three of these states, the notice and reporting threshold is at $10,000. Sellers have the option to comply with these requirements or collect the tax. If the seller decides not to collect, they should comply as the penalties can be harsh. These three states also have enacted marketplace facilitator collection requirements and we know some of the platforms have started collecting on behalf of all sellers in Pennsylvania and Washington.
Massachusetts and Ohio had existing legislation with cookie nexus(link) provisions. This provision stipulates that digital cookies, software or apps that are downloaded onto devices in their state constitute tangible personal property which meets the prior physical presence rule.
Massachusetts announced that their October 2017 regulation continues to apply and is not impacted by the Wayfair decision. Ohio released a statement saying the decision does not have an immediate, direct impact on the state.
Litigation is pending in both of these states. Neither of these states have a stay of enforcement in place. We expect the
litigation to be reviewed with actions taking place soon.
Whether the litigation will be enforced retroactively is yet to be seen. Therefore, there is some risk of non-collection in Massachusetts and Ohio which you will want to help your clients evaluate.
States that have economic nexus legislation but have not yet released effective dates may have pending litigation or their law could be tied to the final decision in the South Dakota case. These states can’t start enforcement until the remand is resolved in South Dakota – and that includes South Dakota.
The current timeline expects the remand to be resolved by mid-September. It is our understanding that the parties are negotiating next steps.
To keep tabs on these states, you can visit the Sales Tax Institute Remote Seller Nexus Chart or Remote Seller Resources page for the latest updates. It is expected additional states will pass new remote seller legislation – several have announced plans to draft legislation or hold special sessions to workshop legislation.
I am often asked if anything is surprising me about what is happening post Wayfair. What has surprised me the most is Iowa’s legislation – not just regarding remote seller but the broadening of their tax base to tax more services as well as SaaS.
A few states including Utah, Wisconsin, and Minnesota are looking at ways to reduce other taxes as a result of the increased revenue from remote sellers. That has always been my philosophy. If more transactions are taxed properly and more sales tax revenue is generated, states should look to reduce the tax burden through either reduced sales tax rates, narrowing the base, or making adjustments to other taxes that impact their constituents.
There is a fair amount of uncertainty as to how much revenue will be generated, but I had hoped more states would take this approach. I applaud Utah which included provisions that broadened their manufacturing exemption in exchange for the remote seller collect authority. I wish it had enacted provisions that impacted more consumers as taxpayers, but it is a good first step.
I also am pleasantly surprised that most states are taking a measured, thoughtful approach to this. There has been a lot of advice offered from policy experts that the states have the ability to control their destiny.
Acting rashly and harshly could result in federal legislation which could reverse their “win” from the Supreme Court or greatly restrict their ability to collect tax. States for the most part have listened. Even Hawaii pulling back on their retroactive legislation shows that the advice is sinking in. States are working together to keep their peers in line. This has surprised me!
And what will totally surprise me if it happens? Federal legislation! We’ve been asking Congress to step in for years and they haven’t.
Although a hearing was held in the House Judiciary Committee on July 24, 2018, I just would be surprised if they do anything. Of course, if the states don’t continue with careful enforcement, then this might happen. At this point, I don’t know that federal legislation is the right answer. Congress had their chance.
Next week will explore how sellers are reacting post Wayfair ruling
About Diane Yetter
Diane Yetter, CPA, MST is president and founder of YETTER, a sales tax consulting and tax technology firm in business since 1996. She is also founder of The Sales Tax Institute, a premier think tank that offers live and online courses to educate business professionals about sales and use tax.