More States Require Out of State Retailers to Collect Sales Tax

Last June, the U.S. Supreme Court ruled that states may require internet retailers to collect sales taxes even when they have no physical presence in the state.  The Court overturned the 1992 “Quill vs. North Dakota” decision, which said that retailers must have a certain level of physical presence (nexus) before that state can force the retailer to collect taxes. 

The Court supported a South Dakota law passed in 2016 that required collection by an out-of-state retailer to collect sales taxes regardless of whether there was a physical presence.  The South Dakota law established a small-business exemption for retailers with less than $100,000 or 200 transactions in annual sales.  The Court found that the combination of an exemption and free or affordable software for calculating the taxes should help address collection challenges.

More than 30 states will now require collection, immediately or in the near future.  Most of the states have taken South Dakota’s approach and created a small business exemption for retailers with less than $100,000 or 200 transactions per year, or a bit more than that amount.  A few state laws are already in effect and many others are scheduled to start in 2019, including California which is set to start on April 1, 2019.  The list of states requiring collection include Alabama, Arkansas, California, Colorado, Connecticut, District of Columbia, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, West Virginia and Wisconsin.

Five states do not impose sales tax—Delaware, New Hampshire, Montana, Oregon and Alaska (although some municipalities in Alaska do). 

The U.S. Supreme Court noted that Congress has always had the authority to enact legislation to authorize collection, but that has not occurred to date. The Court ruling along with implementation by many states may now spur Congress to establish a single federal standard, including a uniform small-business exemption and limited ability for states to pursue out-of-state audits. Various studies estimate that the potential amount of uncollected state sales taxes may range from $13 to $33 billion.

Below are states pursuing out-of-state sales tax collections, as of: January 23, 2019.  For additional information, SEMA recommends that you contact your accountant or tax professional.  If you have any questions, contact Stuart Gosswein at stuartg@sema.org

 

State                            Sales tax collection start date            Exemption for Minimum Sales

Alabama                      Oct. 1, 2018                            $250,000

Arkansas                     Pending                                   $100,000 or 200 transactions

California                    April 1, 2019                           $100,000 or 200 transactions

Colorado                     Dec. 1, 2018**                        $100,000 or 200 transactions

Connecticut                 Dec. 1, 2018                            $250,000 or 200 transactions

District of Columbia   Jan. 1, 2019                             $100,000 or 200 transactions

Georgia*                     Jan. 1, 2019                             $250,000 or 200 transactions

Hawaii                         Dec. 1, 2018                           $100,000 or 200 transactions

Idaho                           July 1, 2018                            $10,000

Illinois                         Oct. 1, 2018                            $100,000 or 200 transactions

Indiana                         Oct. 1, 2018                            $100,000 or 200 transactions

Iowa                            Jan. 1, 2019                             $100,000 or 200 transactions

Kentucky                     Oct. 1, 2018                            $100,000 or 200 transactions

Louisiana                    Jan. 1, 2019                             $100,000 or 200 transactions

Maine                          July 1, 2018                            $100,000 or 200 transactions

Maryland                     Oct. 1, 2018                            $100,000 or 200 transactions

Massachusetts             Oct. 1, 2017                            $500,000 or 100 transactions

Michigan                     Oct. 1, 2018                            $100,000 or 200 transactions

Minnesota                   Oct. 1, 2018                            10 transactions totaling $100,000                                                                                     or 100 retail transactions

Mississippi                  Sept. 1, 2018                           $250,000

Nebraska                     Jan. 1, 2019                             $100,000 or 200 transactions

Nevada                        Oct. 1, 2018                            $100,000 or 200 transactions

New Jersey                  Nov. 1, 2018                           $100,000 or 200 transactions

New York                   Jan. 15, 2019                           $300,000 or 200 transactions

North Carolina            Nov. 1, 2018                           $100,000 or 200 transactions

North Dakota              Oct. 1, 2018                            $100,000 or 200 transactions

Ohio                            Pending                                   N/A

Oklahoma                   July 1, 2018                            $10,000

Pennsylvania               April 1, 2018                           $10,000

Rhode Island*             Aug.17, 2017                          $100,000 or 200 transactions

South Carolina            Nov. 1, 2018                           $100,000

South Dakota              Nov. 1, 2018                           $100,000 or 200 transactions

Tennessee***              Stayed pending litigation               $500,000

Texas                           Oct. 1, 2019                            $500,000

Utah                            Jan. 1, 2019                             $100,000 or 200 transactions

Vermont                      July 1, 2018                            $100,000 or 200 transactions

Washington*               Oct. 1, 2018                            $100,000 or 200 transactions

West Virginia             Jan. 1, 2019                             $100,000 or 200 transactions

Wisconsin                   Oct. 1, 2018                            $100,000 or 200 transactions

 

*Rhode Island, Washington and Georgia allow retailers to include a statement telling customers to submit sales tax in lieu of collecting the tax; those retailers must send Georgia customers with more than $500 in purchases a tax statement each year; in Washington, retailers with more than $100,000 in sales to the state must collect tax

**Colorado has a grace period that will run through May 31, 2019

***Tennessee signed an online tax legislation into law, then passed another law prohibiting enforcement of the passed law