In years past, online sellers were not required to charge or remit state sales tax as determined by a 1992 Supreme Court Ruling. Quill Corp. v. North Dakota determined that in order to charge state sales tax, a business must hold a physical tie, or nexus, in a state. Usually, this took the form of a storefront, warehouse, or one or more employees.
As more and more companies began offering their products and services for online purchase, however, many states began to notice a decline in state sales tax revenue. South Dakota was among the first to attempt to establish economic nexus, rather than physical nexus, and asserted that a remote seller’s sales in a state constituted a significant economic interest. More than 20 states adopted similar economic nexus laws, but most of those chose not to enforce them right away.
Widespread Consequences for Online Sellers
South Dakota v. Wayfair, Inc. (2018) resulted in the Supreme Court overturning the 1992 Quill Corp. v. North Dakota decision. In it, the Court asserted that, dependent on individually determined state thresholds, remote sellers must collect sales tax online. This changed the basis for nexus from physical to economic, and has resulted in changes to the way in which many states assess sales tax for online vendors.
After the Wayfair decision, most states with pre-existing economic nexus laws set effective dates requiring their enforcement. Ten more states drafted nexus legislation of their own, and all are currently active aside from Tennessee, which is still under injunction and awaiting further action. All spoken, 31 states have adopted economic nexus laws to date, with varying terms of enforcement.
What Does This Mean for Your Business?
With multiple new laws in place, remote sellers may be asking themselves “Do I need to charge sales tax on my website?” When it comes to Texas online sales tax rules, the answer is not as clear cut.
South Dakota-style eCommerce sales tax rules in Texas were recognized as of October 1, 2018, but the Texas state comptroller has been much more vague than that of most other states. The statement asserts that remote sellers may have to collect sales tax online in late 2019, but no date is given. Additionally, sellers will be required to obtain a Texas tax permit, but will not likely need to claim such taxes until the 2020 tax season and will not be responsible for retroactive state sales taxes.
If your business sells tangible products or services in other states, you will be required to collect sales tax online in those states. Currently, a streamlined state sales tax project exists to ease the burden of the various effective dates and thresholds in the various economic nexus states. Avalara offers a variety of products that can aid you in determining your eligibility for streamlined filing, as well as keep you up to date on the still evolving sales tax rules in Texas.
Disclaimer: The information in this blog post is provided for general informational purposes only and should not be construed as legal advice from Forix or Avalara.