Wayfair Update: State & Local Tax Landscape Altered

Oct 30, 2019

Last year, the U.S. Supreme Court found in favor of the State of South Dakota by expanding the definition of in-state nexus to include a “virtual presence” in South Dakota v. Wayfair, Inc. The Supreme Court approved the South Dakota law imposing filing requirements on businesses that have $100,000 of gross receipts or 200 transactions with customers in the state. Many states have adopted those thresholds, but others have altered them slightly.

Since the Supreme Court’s decision, many states have enacted legislation similar to South Dakota’s rule expanding sales tax conditions to require more businesses to register and file sales tax returns. Businesses can now be required to collect sales tax even if they do not have a physical presence in a state, so long as it meets some minimum thresholds.

Recently, Ohio and Pennsylvania adopted modified economic nexus provisions:

In response to the U.S. Supreme Court decision in Wayfair, Ohio has adopted an economic sales & use tax nexus standard.  The new standard replaces the traditional physical presence nexus standard. Under House Bill 166, effective August 1, 2019, a seller is presumed to have sales & use tax nexus in Ohio if the seller has either gross receipts in excess of $100,000 from sales into Ohio or engages in 200 or more separate transactions in Ohio. The threshold under either test is measured during the current calendar year or the preceding taxable year. Taxpayers doing business in Ohio should review their sales data to determine if they are subject to the new nexus standards and are required to collect and remit sales tax from customers.

Beginning in the tax year 2020, the State of Pennsylvania will impose a new income tax nexus standard that is comparable to the sales & use tax economic nexus standard outlined in Wayfair. Historically, a taxpayer had income tax nexus in a state where it had a physical presence, i.e. carrying on activities beyond the solicitation of sales or having property located in the state. The Pennsylvania Department of Revenue is asserting that the physical presence is no longer required. Under the new standard, the state will impose an income tax filing obligation on remote taxpayers that are doing business and have an economic presence in the state. Economic presence under the Pennsylvania nexus standard is defined as having in excess of $500,000 of gross receipts sourced to Pennsylvania from the sale or lease of tangible personal property, sale of services or the sale or licensing of intangible property in the state. Taxpayers that have Pennsylvania sourced sales and are not filing an income tax return in the state should review their sales data to determine if they have an income tax filing obligation based on the new nexus standard for tax years beginning on or after January 1, 2020.

Click here to view an up-to-date state nexus guide.

Categories: Retail, Tax Compliance, Tax Planning