Sales Tax Nexus: State of Ohio Takes Action

The Ohio Department of Taxation issued a release stating that “substantial nexus” exists for Ohio sales and use tax purposes if the seller has gross receipts in access of $500,000 and if the seller uses in-state software to sell tangible personal property or services or enters into an agreement with another person to accelerate or enhance the delivery of the sellers website to others. The release (Sales Tax Information Release ST 2017-02) notes a difference between “in-state software nexus” and “network nexus”. In-state software refers to the use of software to sell or lease taxable tangible personal property or services in Ohio. Network nexus refers to the creation of a network to distribute property whether through taxable sales, storage, use or consuming in Ohio. If the benefit is realized in Ohio, sales tax is owed in Ohio. Anyone making taxable sales in Ohio will need to obtain a seller’s permit, collect tax, file returns and remit tax.

This is the latest update in the Sales Tax Nexus conversation. Ohio’s law appears to be more aggressive than South Dakota and similar to Massachusetts. If you’re doing business across state borders, you may need assistance ensuring compliance. Contact a member of our State and Local Tax Team to learn more.

Economic Nexus: Delayed Enforcement in Wyoming

The Wyoming Department of Revenue has given notice that it cannot enforce recently enacted tax legislation pending the outcome of legal action filed against some out-of-state remote sellers.

The new legislation requires the collection of Wyoming sales tax by a seller of tangible personal property, admissions and taxable services on sales into Wyoming based on a test of certain dollar levels and number of sales transactions. This legislation is similar to legislation being enacted in other states, as states continue to test the physical presence requirement of Quill v. North Dakota.

In the Wyoming legislation, a seller would be subject to collecting sales tax, if, in the previous or current calendar year:

  • The seller’s sales into Wyoming exceed $100,000, or
  • The seller has 200 or more separate transactions into Wyoming.

Are you doing business in the State of Wyoming or anywhere online? Contact a member of our State and Local Tax team to learn more about your compliance obligations and current disclosure options.

Multistate Tax Commission Voluntary Disclosure Deadline Extension

Due to overwhelming demand of businesses wanting to participate in the program, the Multistate Tax Commission has extended the application and registration deadlines for its voluntary disclosure initiative for online marketplace sellers from October 17 to November 1, 2017. The program provides relief from tax liability, interest, and penalties for sales and use tax, income/franchise tax, or both. Taxpayers filing a timely application are now allowed 30 days after receiving notice that the taxing state has signed a voluntary disclosure agreement to register with the state.

Read more about the MTC program in our first update and the expansion of states included in the program in our second update.

Please talk with your Eide Bailly tax professional or a member of our State and Local Tax Team if you’re considering participating the program

SD Case petitions the U.S. Supreme Court

As previously noted, states’ push to obtain tax revenue from remote sales has been a hot topic this year. Recently, the South Dakota Supreme Court issued their opinion in the case of The State of South Dakota v. Wayfair, Inc., Overstock.com, Inc., and NewEgg, Inc. The court opinion stated that “Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes.”

The State of South Dakota took action immediately and on October 2, 2017, filed a state petition asking the U.S. Supreme Court to reconsider the 25-year-old Quill opinion. This is the first state petition of its kind but unlikely to be the only one.

“The retail landscape significantly changed with the inception of the internet and access to online shopping. Federal law currently shields out-of-state businesses from remitting the same taxes as South Dakota businesses,” said State Attorney General Marty Jackley in a press release announcing this petition.

Colorado and Alabama have pushed back against Quill Corp. v. North Dakota. Other states are imposing use tax notification and reporting requirements for out-of-state sellers in order to work around the physical presence precedent upheld by Quill. Some are enacting a tax on marketplace providers.

It’s clear that this will only be the start of cases asking the U.S. Supreme Court to revisit Quill.

Quill not overruled by SD Supreme Court

The South Dakota Supreme Court on September 13, 2017 issued their opinion in the case of The State of South Dakota v. Wayfair, Inc., Overstock.com, Inc., and NewEgg, Inc. The Court stated:

“However persuasive the states [SD] arguments on the merits of revisiting the issue, Quill has not been overruled. Quill remains the controlling precedent on the issue of Commerce Clause limitations on interstate collection of sales and use taxes. We are mindful of the Supreme Court’s directive to follow its precedent when it “has direct application in a case” and to leave to that Court “the prerogative of overruling its own decisions.”

The opinion was rendered on appeal by the State of South Dakota to challenge a lower court decision that the recently enacted South Dakota sales tax law requiring sales tax to be collected on sales where no physical presence was maintained by the seller was unconstitutional according to the US Supreme Court ruling in North Dakota v. Quill Corporation.

The quick, taking only 16 days, negative decision rendered by the South Dakota Supreme Court may have been what the State of South Dakota was hoping for. The decision now allows the State of South Dakota to move this highly sensitive sales tax issue once again back to the US Supreme Court to revisit the issue of physical presence now that many more years of internet activity will be available for their arguments. And, as the South Dakota Supreme Court noted, provide the US Supreme Court the opportunity to overrule their decision in Quill.

Contact your Eide Bailly professional or a member of our State and Local Tax team to discuss your sales tax filing obligations.

 

 

 

Texas Tax Response to Hurricane Harvey

The Texas Comptroller’s Office has posted sales tax rules and regulations for disaster recovery.  Many taxable items, including services, are now temporarily tax exempt as part of the hurricane Harvey cleanup. Learn more about tax filing extensions, and FAQs related to hotel tax and sales tax in information the comptroller has shared on their website. In addition, out-of-state businesses performing disaster or emergency related work at the invitation of an in-state business is also exempt from tax. Learn more here.