The Impact of New State Tax Laws on E-Commerce

Darren.Woon

More than 35 states have introduced or passed bills over the last year that would allow sales taxes to be collected from internet commerce, which was once excluded from state taxation, according to JD Supra.

States had been unable to oblige out-of-state sellers to collect and remit sales and use tax for out-of-state transactions prior to the Supreme Court’s decision in South Dakota v. Wayfair in June 2018.

Online sellers lacked what is known as a “state nexus” which means the sellers did not have a “physical presence” in the state. In the decision, a physical presence standard was abandoned in favor of a new “economic nexus”. If there is a demonstrated level of “economic and virtual contacts” affecting the state, states may tax the remote transactions.

States may collect taxes on transactions if the remote sellers surpass certain revenue or activity thresholds, typically between $100,000 and $250,000 in gross revenue for taxable goods and services into the state per year, or a minimum of 200 transactions into the state per year.

However, the multiplicity of states passing these new laws in order to secure an additional flow of revenue creates some complications. Under different state statutes, definitions for “marketplace facilitators”, “marketplace sellers”, and what constitutes a taxable good or service, all vary state-to-state.

This is expected to give rise to a variety of questions regarding the vague or uncertain terms, which will take years to answer.

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