SEMA eNews Vol. 22, No. 4, January 24, 2019

California and Many Other States Now Require Retailers to Collect State Sales Taxes

By SEMA Washington, D.C., Staff

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 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 24, 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       October 1, 2018       $250,000
Arkansas       Pending       $100,000 or 200 transactions
California        April 1, 2019        $500,000
Colorado        December 1, 2018**       $100,000 or 200 transactions
Connecticut       December 1, 2018       $250,000 or 200 transactions
District of Columbia       January 1, 2019       $100,000 or 200 transactions
Georgia*       January 1, 2019       $250,000 or 200 transactions
Hawaii       December 1, 2018       $100,000 or 200 transactions
Idaho        July 1, 2018       $10,000
Illinois        October 1, 2018       $100,000 or 200 transactions
Indiana        October 1, 2018       $100,000 or 200 transactions
Iowa         January 1, 2019       $100,000 or 200 transactions
Kentucky       October 1, 2018       $100,000 or 200 transactions
Louisiana       January 1, 2019       $100,000 or 200 transactions
Maine         July 1, 2018       $100,000 or 200 transactions
Maryland        October 1, 2018        $100,000 or 200 transactions
Massachusetts       October 1, 2017       $500,000 or 100 transactions
Michigan        October 1, 2018       $100,000 or 200 transactions
Minnesota       October 1, 2018       10 transactions totaling $100,000 or 100 retail transactions
Mississippi        September 1, 2018        $250,000
Nebraska        January 1, 2019        $100,000 or 200 transactions
Nevada       October 1, 2018       $100,000 or 200 transactions
New Jersey       November 1, 2018       $100,000 or 200 transactions
New York       January 15, 2019       $300,000 or 200 transactions
North Carolina        November 1, 2018       $100,000 or 200 transactions
North Dakota       October 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*       August 17, 2017       $100,000 or 200 transactions
South Carolina        November 1, 2018       $100,000
South Dakota        November 1, 2018       $100,000 or 200 transactions
Tennessee***       Stayed pending litigation       $500,000
Texas       October 1, 2019       $500,000
Utah       January 1, 2019       $100,000 or 200 transactions
Vermont        July 1, 2018        $100,000 or 200 transactions
Washington*       October 1, 2018       $100,000 or 200 transactions
West Virginia       January 1, 2019       $100,000 or 200 transactions
Wisconsin        October 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.

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