Remote Sellers are businesses that sell goods or services in states in which the businesses have no physical presence. For sales tax purposes, physical presence requires that a business have an office, employee, warehouse, or other affiliates in the state.
With the development of online shopping, more businesses have started to sell goods or services to residents in states other than those states in which the businesses have a physical presence. Now there is a problem of what to do about reporting and collecting sales or income tax for sales to customers in states where the business has no physical presence. This has been an important and complicated topic in sales tax after a US Supreme Court judgment in 2018.
On June 21, 2018, The United States Supreme Court ruled 5-4 in South Dakota v. Wayfair that states can mandate businesses without a physical presence in a state, to collect and remit sales tax on transactions related to that state. This decision overturned the Court’s 1992 decision in Quill v. North Dakota and its 1967 decision in National Bellas Hess v. Illinois, which were allowing companies to sell goods or services to customers without collecting and reporting sales tax, as long as there was no physical presence in the states where the customer was located.
After Wayfair, many states that collect sales tax began to establish Economic nexus laws as a way to collect sales tax from remote sellers.
Economic nexus laws determine whether a company has an economic impact in the state, and these rules apply to any business that makes sales in states in which they have no physical presence. In many states, these economic nexus rules are also subject to certain thresholds.
Items to note when reviewing these requirements:
- Some states base their threshold on the amount of sales, or the number of transactions, while other states base their threshold on the amount of sales and the number of transactions.
- A state may base its sales threshold on gross sales, gross revenues, retail sales, or taxable sales. Many states do not distinguish between taxable and non-taxable sales when determining if a threshold is met.
In addition, some states have started to apply Economic nexus rules to their state income tax in addition to their state sales tax. This has resulted in some companies having to report and pay income tax in a state where companies did not previously have to do so.
The remote seller tax rules are complicated since different states may have different laws and rules. We have many clients who have had such issues and our professional team helped our clients to solve these issues. If you experienced or will have this problem, please don’t hesitate to contact us.