Page 28 - BusinessWest June 23, 2021

collect sales tax on transactions into the state. These companies were pre- dominantly located out of state and were making sales via mail or tele- phone calls. The companies were not collecting sales tax on the transactions.
The states were less than pleased. One state, North Dakota, passed a law requiring any company engaging in ‘regular or systematic’ solicitation in the state to become registered for and collect sales tax. In 1992, the U.S. Supreme Court held that a company needed to have a physical presence (employees, property, or offices) in
a state before the state could require the company to collect sales tax. This
“f you are one of those businesses who started selling direct to consumers on your website or if you turned a previous hobby into a business venture that markets using an online marketplace that does not collect sales tax for you, you might have a
significant tax exposure you’re not even aware of.”
landmark case was Quill Corp. v. North Dakota.
Quill made sales-tax compliance easy for companies: if a company was physically present in a state, it had to collect sales tax for that state. If the company was not physically present in a state, it did not have to collect sales tax, although it was inevitable that there would be some controversy about when companies were ‘present.’
Seeing revenues were on the decline, states began adjusting their tax laws or regulations. One by one, states devised new requirements to make companies collect sales tax. States enacted various laws or promulgated regulations to creatively find nexus, such as Massachusetts, which taxed sales based on an electronic ‘cookie’
on a computer, and New York, which developed so-called click-through nexus, taxing internet sales that were derived from clicking through adver- tisements on websites.
South Dakota was one state that enacted an economic nexus law. The South Dakota law says that if a seller makes $100,000 of sales into the state or has 200 or more sales transactions into the state in a calendar year, the seller must collect sales tax. The law did not impose sales taxes retroac- tively; it law was designed to provoke litigation and for the issue it raised to reach the U.S. Supreme Court as quick- ly as possible. South Dakota pursued four large companies it knew would meet its threshold. Three of those com- panies sued: Newegg, Overstock.com, and Wayfair.
The case became known as South Dakota v. Wayfair Inc. After rocketing the case through state courts and los- ing, South Dakota took its arguments to the U.S. Supreme Court and won. Now, physical presence is no longer needed; if a company’s activity has substantial nexus with a state, the state can require the company to collect sales tax on sales into the state.
Almost all states with economic nexus allow an exception for small remote sellers, which is determined by a remote seller’s sales and/or transac- tions in the state (the economic-nexus threshold).
Any remote seller whose sales into the state meet or exceed a state’s eco- nomic-nexus threshold must register with that state’s tax authority, collect and remit sales tax, validate exempt transactions, and file sales-tax returns as required by law. Remote sellers whose sales and/or transactions in a state are under the state’s threshold don’t need to register; however, they do need to monitor their sales into the state, so they know if they develop eco- nomic nexus.
Unfortunately, state economic-nex- us thresholds vary widely. This serious- ly complicates nexus determinations.
In a post-Wayfair sales-tax world,
Online
Continued on page 47
At MBK, we are more than just tax advisors. We work with you to understand your business objectives, personal goals and fiduciary responsibilities. We use our in-depth knowledge to develop effective, proactive strategies to put you in the most tax advantageous position possible. And we’re here for you all year long — not just during tax season.
330 Whitney Avenue | Suite 800 | Holyoke, MA 01040 | 413-536-8510 | mbkcpa.com 413-536-8510 | mbkcpa.com
28 JUNE 23, 2021
ACCOUNTING & TAX PLANNING
BusinessWest