On July 25th, Chuck Maniace, vice president of regulatory analysis and design at Sovos, hosted a replay of the “South Dakota v. Wayfair One Year Later” webinar on regulatory updates since the groundbreaking decision last June. Thanks to all those who participated, we received an additional wide range of thought-provoking questions.
Our regulatory team compiled responses to the submitted questions, from our original presentation, and from our most recent updated replay, below, which we hope you find valuable in moving forward with future regulatory analysis and marketplace changes. Questions ranged from individual state regulatory updates to third-party retailer sales tax collection changes, terminology clarification, nexus start dates, and more.
South Dakota v. Wayfair Questions and Answers
Q: Is there any update on when Louisiana will officially pass their law, and if so would you recommend registering once the law passes?
A: Indeed, as we discussed during the course of the webinar, Louisiana has formally announced that their economic nexus requirement became effective on July 1, 2019, based on a 200 transaction and $100,000 in sales threshold. For this year, economic nexus sellers can use a simplified calculation and reporting approach (filing using R-1031). However, currently Louisiana law states that this simplification will only be allowable until July 2020.
Q: What is the exact nexus law in Ohio, and is there a significant difference from other states?
A: Ohio is an interesting case. A few years back Ohio (like Massachusetts) enacted a rule that held that physical nexus was created when a seller deposited “cookies” on the phones or devices of in-state customers, which is (of course) a very common practice that is meant to facilitate the use of a company’s website. Essentially, the state held that the cookie constituted in-state property for the purpose of determining traditional physical nexus. In recent days, Ohio has replaced this “cookie nexus” rule with a more standard economic nexus requirement that does not rely on cookies; the new rule becomes effective on August 1. As an aside, we suspect Massachusetts will do the same in relatively short order.
Q: How does storage in FBA warehouses affect the changes?
A: Without crossing the line of providing anything that can be interpreted as consulting advice, we’ll say that if your company stores inventory in an FBA warehouse in a given state, you will generally be deemed to be a “physically present” seller in that state with traditional physical nexus. This means you will have a tax collection and remittance responsibility regardless of whether you cross any prevailing economic nexus thresholds for that state. In short, it’s important to remember that economic nexus standards supplement, but do not replace, physical nexus standards
Q: Will third-party retailers (Amazon, Ebay, etc.) be required to collect sales tax for all states and remit on our behalf?
A: There does indeed tend to be a strong trend towards states adopting requirements that marketplace facilitators collect and remit tax on behalf of their client sellers. However, this requirement is far from universal at this point in time, and of course not every marketplace facilitator will be so required. In most states that have a marketplace rule, only those marketplace facilitators that cross a state’s economic nexus threshold for marketplaces will be so required.
Q: How can Colorado claim the tax collection is unduly burdensome?
A: A big part of what makes Colorado extra complex is the presence of self-administered cities and districts that have independent rates, rules and filing requirements. While we can’t speak for the state’s department of revenue directly, we suspect that their thoughts are that since the remote sellers are only obligated to collect tax at the state level, the county level, and for state-administered cities and districts (which are more uniform), then some of the complexity associated with Colorado is lessened.
Q: In the state of Colorado, what happens if we’re selling into a home-rule district and we do not meet their threshold? Will we have to give notice to the consumer that they are responsible to report the sales tax themselves?
A: Remote sellers into Colorado are required to collect state sales tax, county tax, and city/district tax in any state-administered city or district. The requirement to collect tax in any home-rule city or district is determined based on physical presence as, to our understanding, no Colorado locality has attempted to apply an economic nexus requirement on sellers. Further, our understanding is that the taxpayer notice requirement does not extend to home rule cities and that your obligation to provide such notice to customers in home-rule cities would be completely voluntary. However, if you have applied a contrary interpretation based on your own legal analysis, we would not in any way seek to supplant that.
Q: What is the difference between seller’s tax and use tax?
A: This is a really good question, and you are right to think that in a lot of cases these concepts are squished together. Sales tax is charged by the seller to the buyer in those cases where the seller and the buyer are located within the same state. Seller’s use tax is charged by the seller to the buyer when the buyer and seller are in different states. With respect to state tax, the result is always the same, as every state has a use tax rate equivalent to its sales tax rate. However, localities may not. Most do, but certainly not all of them. Now, there are some exceptions. As we discussed in the webinar, Colorado has essentially eliminated the concept of seller’s use tax and requires all sellers to collect sales tax. The same is true in Arizona.
Q: Which states include sales to wholesalers in the thresholds vs. just direct to consumer sales?
A: Sovos does not have that information at our fingertips. You could, however, find this information via the links provided in the Sovos economic nexus table.
Q: If you have physical nexus in Louisiana and have been remitting local tax directly to parishes and state sales tax to the state, would you be eligible to file form R-1031 for all the non-physical (internet) sales? Or do you now need to be licensed and collect/report in LA individually effective 7/1/2019?
A: This is a really interesting point that we suspect Louisiana has not considered. That as things stand today, remote-sellers “essentially” collect everywhere but in-state sellers only need to collect in those localities where they have independent physical presence. Further, this situation will be exacerbated when (next year) Louisiana moves (as currently planned) to require the collection of standard local tax. When this has come up in other states that have independent local nexus, it’s been our experience that the states have subtly moved to eliminate the concept of independent local nexus and treat in-state sellers essentially the same as remote sellers. We will certainly be on the lookout for additional detail.
Q: Are states like Oklahoma going to use registrations for sales tax to go back and audit companies who did not know about/did not comply with notice & reporting requirements prior to their economic nexus laws going into effect?
A: It’s certainly possible, and it would be impossible for us to assign a degree of risk to the chance of your organization being audited for failing to collect immediately upon the enactment of an economic nexus standard. However, we can say that many states (right now) are primarily concerned with registering and accepting the returns from those companies coming forward, and are far more interested in compliance going forward. At some point, though, they will definitely be of the opinion that states that have not yet complied have nonetheless had plenty of time to comply and will seek to impose liability retroactive to the date the economic nexus standard was made effective.
Q: Have there been any challenges to the South Dakota v. Wayfair case?
A: With respect to this question, we suspect that you are asking whether, in a particular state, a company has mounted a legal challenge alleging that their economic nexus standard is unconstitutional based on the fact that their sales tax requirements represent an undue burden on interstate commerce. To our knowledge, as things stand today, there are no such challenges in progress.
Q: How do we calculate the start date for economic nexus?
A: The rules vary from state to state. In most states, but not all, the period is measured (starting on the date the standard is enacted) by looking at the immediately previous or current calendar year. The Sovos economic nexus table provides a quick summary on a per-state basis.
Q: Is the SST registration now obsolete?
A: Absolutely not. SST registration is even more valuable today than it might have been before. Any company that needs to register in an SST member state is free to use the SST Central Registration System. Further, as of a few months ago, the requirement that a seller using the system must register in all member states has been removed. So now you could use the system to register in as many member states as you may want, and then later if you want to register in more, you could do that too.
Q: How should we be modifying our tax set up within ShipCompliant and should we be checking the nexus box?
A: Without knowing which states you are thinking about, its difficult to answer this question. However, please feel free to reach out to Sovos support. We’ll be happy to discuss your configurations and whether you are properly set up to collect tax in the states as a remote seller in those states.
Q: If you’re registered in Tennessee and collect sales tax voluntarily, will Sovos automatically update and collect in all the localities starting in October?
A: If you are using Sovos today to collect tax in Tennessee, we strongly suspect that you are collecting standard state and local tax and not collecting at the special voluntary rate. However, Tennessee does have a special “digital products” tax that works in a very similar way, and right now there is no immediate indication that the digital products rules will be eliminated along with the Tennessee volunteer rate.
Q: Do you have any information about which states have privilege taxes that are being enforced now because of economic sales tax nexus?
A: No, not specifically, but you are right to be on the lookout for states aligning the nexus standards for other tax regimes with those that now apply to sales tax across the country.
Q: If you are currently registered in Colorado for tax obligations, will the Sovos system automatically update any local obligations that are collected by the state?
A: Yes. It may be worth a peek into your current configurations just to be 100 percent sure, but the way things were configured, the “Standard” GTD tax obligation configuration for Colorado is to create a tax obligation for any state-administered locality whenever a user has a tax obligation set at the state level.
Q: When will Ohio [economic nexus and marketplace sales tax requirement] go into effect?
A: As we discussed during the webinar, the Ohio marketplace requirement (and also an economic nexus requirement separate from their existing “cookie nexus” rule) kicks in on August 1, 2019.
Q: Would there be any benefit for registering to collect Texas local tax rates as opposed to just the simple out-of-state seller single rate?
A: The question of whether a seller wants to apply tax based on standard local rates versus the special remote seller rate is really dependent on the factual circumstances of the seller. If you are using a CSP (such as Sovos), collecting at standard rates is simply just as easy as collecting at the special rate….and could result in fewer questions from your customers who know and understand the local rates prevailing at their particular address.
Couldn’t join us on July 25? Watch the on-demand recording and download the slides from our updated, encore presentation of: “South Dakota v. Wayfair One Year Later: Retrospective and Look Ahead.” and be prepared for changes ahead.