It has taken years for state tax law to catch up to the world of online retail, most significantly where sales tax is concerned. This was not for lack of trying by state legislatures, however, as many had passed laws trying to require online retailers to collect sales tax, but the 1992 U.S. Supreme Court case Quill Corp. v North Dakota stood in the way, saying that online retailers need only collect sales tax in states where their business had a physical presence. It was not until the 2018 case of South Dakota v. Wayfair that the Court ultimately decided the Quill ruling had not kept pace with the considerable technological advancements inherent to modern business, specifically in regard to e-commerce, with the court ruling nexus could be created via economic presence as measured by sales into a state.
Following the Wayfair ruling in June 2018, state tax revenues did not immediately increase by the wide-ranging estimates discussed during the lead-up to the case. The reason for this is attributed to not only the length of time it took the states organize around enforcing economic nexus but also the time it took online retailers to comply with these new laws. Now, following a global pandemic which saw brick and mortar retail locations shuttered for extended periods in 2020, Bloomberg Businessweek reports that sales taxes collected as a result of the new economic nexus laws were one of the only revenue streams keeping many states’ finances afloat.
Natalie Cohen, president of consulting firm National Municipal Research Inc., described the impact to Bloomberg as “huge” for state governments that experienced contractions of other revenue streams. “The two events together – the Wayfair decision and the pandemic – have just exploded online sales revenues1.”
Missouri is the only state that has not yet passed its own Wayfair law, but they are working hard to do so and likely will this year, according to Michael Bannasch, CPA, chair of the MICPA’s State and Local Tax Task Force. With basically all states now on board with economic nexus laws, and some of those laws turning three years old this summer, the focus will shift more to states auditing businesses to ensure compliance with these laws.
“With these laws in place now for a few years, states will now see more value in tracking down businesses that have failed to comply,” said Bannasch. “While even those businesses that have begun collecting and remitting based on economic nexus could be audited, states are likely to prioritize finding businesses that haven’t even registered for that state’s sales tax yet. If your business has over $100,000 of annual sales, or over 200 sales transactions, to a state and is not doing anything about sales tax for that state, you really should talk to your CPA about getting compliant… before the states come knocking on your door.”
References:
- Moran, Danielle. “The Wayfair Case and Covid Sparked a State Sales Tax Bonanza.” Bloomberg Businessweek. 5 Mar. 2021. Accessed on 4 May 2021.