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New Nexus Standards for Sales Tax

It used to be that sellers had to have a physical presence in a state before that state could require them to register to collect and report sales or use taxes. This physical presence requirement is based on the Quill decision, in which the US Supreme Court held that a physical presence is required to confer nexus for sales tax purposes. Now, several states are adopting creative ways to get around the physical presence requirement.

South Dakota passed legislation, effective April 1, 2016, that would require remote sellers to collect and remit sales tax if they meet any of the following in the prior or current calendar year:

  • Had a physical presence in South Dakota,
  • Made sales of tangible property, products transferred electronically, or services for delivery into South Dakota in excess of $100,000 or
  • Made sales of tangible property, products transferred electronically, or services for delivery into South Dakota in 200 or more separate transactions.

There are provisions for an expedited legal review of the new South Dakota law and potential temporary injunctions during this process. Among the many reasons cited for this legislation are that “given modern computing and software options, it is neither unusually difficult nor burdensome for remote sellers to collect and remit sales taxes associated with sales into South Dakota.” We expect to see many challenges to this new legislation and will provide updates as necessary.

Alabama also recently adopted more aggressive nexus definitions for remote sellers with no physical presence. Effective January 1, 2016, remote sellers who make sales of tangible property into the state in excess of $250,000 per year and have some other indirect link to Alabama, such as directing advertising or sales activities towards customers in the state, will be required to register and begin remitting tax.

Finally, in Colorado, the law requiring remote sellers with no nexus in the state to report their sales to Colorado residents seems to be in effect. The Tenth Circuit Court did not find the law to unduly burden interstate commerce, but this may be further appealed. The law requires out-of-state companies to:

  • Send a notice to purchasers informing them that they may be subject to Colorado use tax
  • Send an annual purchase summary to customers in Colorado who buy more than $500 of goods and
  • File an annual customer information report with the Colorado Department of Revenue.

Many other states are reviewing opportunities to have out-of-state sellers collect sales tax and only the US Supreme Court or Congress can fully regulate this issue. Time will tell how this is ultimately resolved. In the meantime, the sellers absorb the business cost of compliance.

If you have questions regarding nexus standards for states you sell into, contact your Berntson Porter representative at 425.454.7990. We’re here to help!


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