State tax collections have nosedived as much as 50 percent in the fallout of the coronavirus pandemic. All states, without question, will face significant fiscal challenges as a result of the COVID-19 pandemic. However, as a result of the landmark South Dakota v. Wayfair ruling—handed down by the U.S. Supreme Court in 2018—states may charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state.
E-commerce sales have surged as a result of COVID-19, with U.S. online retailers year-over-year growth up by as much as 128% in recent weeks. And states need the sales taxes on remote commerce more than ever. Sales on online marketplaces like Wayfair, Amazon.com Inc., Etsy Inc., and eBay Inc. are increasingly important since more than 40 of the 45 sales tax states are now imposing their collection-and-remittance requirements.
Online/remote sellers need to pay special attention to state sales tax economic nexus rules that have been enacted since the Wayfair decision, because states are collecting billions of dollars on e-commerce sales that were previously uncollected.
Marketplace facilitators are required to collect and remit tax on behalf of their marketplace sellers in most states with economic nexus laws. Yet marketplace facilitator laws don’t necessarily relieve marketplace sellers from all sales and use tax obligations in those states. Some states require marketplace sellers — even those selling only through collecting marketplaces — to register and file returns.
Unfortunately, the adoption of remote sales tax and marketplace facilitator laws hasn’t been without growing pains: food delivery providers and gig economy companies are seeking exemptions, and telecom companies are lobbying for changes on collection obligations.
As business begins to creep towards normal, new considerations and concerns arise. One such issue is sellers across the country having to navigate a patchwork of state and local sales tax models and minimum sales thresholds. Many follow the South Dakota model of $100,000 in sales or 200 transactions into a state annually—which the Supreme Court ruling suggested would be acceptable constitutionally. And some states have no transaction thresholds.
A further possible ramification of the Wayfair ruling and COVID-19 is the few states out there that haven’t yet put economic nexus or marketplace facilitator laws on their books may get laws enacted, particularly with increased revenue pressures on them as a result of COVID-19. Additionally, states may take a closer look at how the economic nexus and marketplace facilitator collection laws are working.
If you need help navigating tax obligations as a result of the Wayfair ruling, the team at Sousa & Weber is here to assist you. Contact us to talk about your specific situation.