Sales tax, economic nexus: What you’re up against now

Time really flies when your finance department is busy charging, collecting and paying more sales tax, thanks to legislative changes.

It’s been two years since the Supreme Court ruled on the pivotal case South Dakota v. Wayfair, which gave states the ability to enforce tax collection on online sales.

Since June 21, 2018, phrases like “economic nexus,” “remote sellers” and “marketplace facilitators” have likely become staples in A/P and A/R vocabularies. You’ve seen states create laws for out-of-state sellers … change their thresholds … add more laws for marketplace facilitators … then change their thresholds again …

Bottom line: It’s been a whirlwind of a time for Finance. Tax compliance has become a trickier, riskier, higher priority.

Where things stand now

The good news is, though states are still tweaking economic nexus laws, the flood of legislative changes has slowed to a steady trickle. Here’s a roundup of where things currently stand that you can share with your team:

Remote sellers: Currently, 43 states and the District of Columbia require remote sellers to collect sales tax on purchases. The only states that don’t are those without state-level sales tax (Alaska, Delaware, Montana, New Hampshire and Oregon), plus Florida and Missouri.

But take note: Alaska has imposed collection requirements at the jurisdiction level. And it’s possible other states may do the same. Your team will also want to keep a close eye on Florida and Missouri, as bills for state-level collection requirements are regularly in the works.

Marketplace facilitators: After the sweep of remote seller legislation, states realized they could bring in more sales tax revenue by taxing marketplace facilitators, like Amazon and eBay.

As of now, 42 states and the District of Columbia have laws on the books for marketplace facilitators, too. This is another area your staff should watch closely, as straggling states may still want to add laws later.

What Finance can expect next

With online sales taxable in most places, states will now focus more on broadening the scope of taxable transactions, say the tax compliance experts at Avalara.

While most digital services are taxable in Europe and across other parts of the world, the U.S.’s laws on taxing digital services have been less common and more inconsistent. Some digital services that you may see sales tax legislation address soon, according to Avalara, are:

• streaming and download media
• Software-as-a-Service (SaaS)
• apps and games
• e-books and digital publications
• e-learning, and
• memberships to online clubs.

COVID-19’s impact

Another point that can’t be overlooked is how the coronavirus pandemic will influence your sales tax compliance. When the world was forced to shut down and businesses temporarily closed their buildings, online sales skyrocketed. Now, that means more companies may meet states’ collection requirements (e.g., $100,000 in sales or 200 separate transactions).

As a result, many companies will likely be grappling with these new sales tax collection requirements, wondering if they’ve triggered nexus and need to collect sales tax.

Your A/P team should keep this in mind as those online purchases come in, so it can stay on the same page as vendors and make sure sales tax is correctly applied. And your A/R team should be extra vigilant in monitoring where and when your company triggers nexus.