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New Sales Tax Laws Are In Effect

The end of summer means it’s time to look forward to holiday sales, but there’s also a more immediate concern for eCommerce companies and brick and mortar shops alike: keeping abreast of the changes to the tax laws.

New sales tax rules are now in effect across the country, touching both traditional and eCommerce order management procedures.

The Latest on Internet Sales Tax

The Marketplace Fairness Act, commonly known as the internet sales tax bill, first made headlines in 2013 when it looked like it would change the way eCommerce worked permanently. Instead, the bill didn’t make it to the House of Representatives for a vote that year. 2014 saw no real changes on that front, but in 2015 three different pieces of remote sales tax legislation were tossed around, but each saw a similar fate as their 2013 predecessor.

In response to what they perceived as a lack of action, the states have started to take matters into their own hands and are creating legislation of their own. Currently, in order for a state to tax an eCommerce retailer, the retailer has to have a substantial presence in the state, known as a “nexus.” Many of the changes this year aim to solidify the definitions of “nexus” for each state involved so that they can begin to capture some of the revenue being lost to online-only transactions taking place inside their borders.

Changing the Definition of Nexus

At one point, a nexus was a substantial physical presence belonging to a business, like a distribution center or a manufacturing plant or even a physical store. Since the advent of e-fulfillment services, what is and what is not a nexus has become very muddled. That’s why 13 states have created more solid definitions of the term “nexus” for this fiscal year.

Two common characteristics have emerged among the states making big changes:

  • The use of in-state affiliates and facilitators. eCommerce companies that use companies based within particular states to help them advertise, promote, facilitate, refer sales or facilitate the delivery of sales may be subjected to sales tax. This means that your warehouse locations as well as the locations of your distributors may subject you to sales tax in some areas.
  • Cumulative sales. Many states are adding a cumulative sales rule to their sales tax laws to recapture tax from eCommerce retailers. Nebraska and Rhode Island, for example, presume your company has established a sales tax nexus if you’ve sold at least $10,000 in merchandise in a previous year. Other states have higher sales amounts, like South Dakota at $100,000.

Every year brings new and exciting changes to the tax law, especially when it comes to state by state sales tax. For eCommerce retailers, these rules are still in such flux that it pays to stay ahead of legislative changes. You’re not required to collect sales tax in every state this year, but the list of states where you’ll need to pay attention is growing.

 

December 01, 2016
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