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What’s New in 2019 for Sales Tax?
Stay on top of the latest e-commerce and marketplace trends.
If you are an online seller, chances are, 2018 made quite an impact on your business. The biggest sales tax disruptor in recent history, South Dakota vs. Wayfair, forever changed how Internet retailers view sales tax compliance. With the SCOTUS ruling giving states the power to set their own economic nexus rules, remote sellers have spent the last eight months watching, waiting, and frantically trying to make sense of it all.
Conversely, 2019 has been a year of learning, catching up, and charting new paths to sales tax compliance. The phrase economic nexus rolls off tongues more easily and online sellers are beginning to bring their heads above water. However, they are also realizing compliance is something they can’t ignore, nor hope will just go away. Keeping up with changing legislation is imperative to knowing where and when you are liable.
With this in mind, we are highlighting six recent changes in sales tax legislation that impact online sellers.
1. Marketplace Facilitators Laws
Amazon currently has fulfillment centers in 34 states, granting nexus to those with inventory in those states automatically. The good news is that in 11 states with marketplace facilitator laws, Amazon will collect sales tax on behalf of the seller based on orders where online sales tax laws are in effect.
Additional popular marketplace facilitators such as Etsy, eBay, and Walmart are following closely behind, which simplifies remittance for marketplace multi-channel sellers. Even smaller marketplaces like Poshmark are beginning to collect on behalf of their sellers. We are guessing it’s just a matter of time before this becomes congruent across all marketplaces.
It is important to note that if you sell directly to customers, you still have a requirement to collect, remit, and file sales tax returns in states where your marketplace is collecting on your behalf. As an example, eBay is a marketplace facilitator that collects in Washington, but you are still not off the hook if you sell directly in that state. You still have a requirement if your business has nexus in Washington to collect, and you will also have to continue to file Business and Occupation (B&O) taxes there.
2. Changes in Economic Nexus Thresholds for Washington and North Dakota
South Dakota was the trailblazer and set an economic nexus precedent of $100,000 in sales in a calendar year or 200 transactions or more into a state. The latter has been known to cause complications for high-volume remote sellers with low-cost items. As a result, states like North Dakota and Washington have recently removed the transaction requirement from their economic nexus requirements, granting relief to many sellers.
It will be interesting to see how many more states follow suit and if the states eventually get to a point of revenue being the sole indicator of economic nexus.
3. New States Passing Economic Nexus Legislation
Some states have passed legislation that is forthcoming this calendar year, while others are still proposing laws that will impact remote sellers in the future. For now, remote sellers should focus on the following:
- California passed (effective April 1, 2019) the economic nexus threshold of $100,000 and 200 transactions. However, legislation is currently going through the state to potentially look at raising the revenue requirements to $500,000. As of this writing, the bill has passed the Assembly but has not made it through the Senate. It is worth watching to see if the revenue requirement increases significantly or stays the same, but for now, the current laws are in effect.
- Virginia passed an economic nexus standard that requires remote sellers and marketplace facilitators to collect retail sales and use tax if they have more than $100,000 in annual sales or at least 200 separate sales transactions into the state. This law is effective July 1, 2019, and just one of the most recent economic nexus laws to pass.
- Texas, with its $500,000 economic nexus threshold, will become effective in the next few months. Their current policy is allowing time for remote sellers to prepare for these changes and gives sellers until October 1, 2019. It is important to note that the initial time frame for calculating these revenues will be July 1, 2018 through June 30, 2019. Knowing this, online sellers should review their sales to prepare for the October effective date.
4. Economic Nexus Consideration
While these states have yet to pass laws, there is the potential for Arkansas and Missouri to be added, as they are currently drafting legislation for consideration around economic nexus. Subscribe to the TaxJar blog, where we will update the most recent economic nexus bills once they become law.
Colorado has never been the easiest state for online sellers to navigate, and thanks to the Wayfair decision, it has become even more difficult to comply. In early 2019, a number of local sales and use tax rate changes took effect in Colorado. Remote sellers who meet or exceed the nexus thresholds must now comply with the same regulations as in-state sellers. Out-of-state retailers with nexus are now required to close down their retailer’s use tax permits and instead, register for a sales tax license from the state of Colorado.
Because this will be cumbersome for those doing business in Colorado, the state is allowing a grace period of May 31, 2019, for both in-state and out-of-state retailers to make the required changes.
6. Iowa Software-as-a-Service (SaaS)
Prior to January 1, 2019, SaaS was not taxable in Iowa, however, effective January 1, 2019, it is now taxable unless it is sold to a commercial enterprise for, “use exclusively by the enterprise.” What’s interesting here is that it is not taxable as software or a digital product, but rather the service is what makes it taxable. Changes like this are surely not limited to Iowa, as the laws on services and digital goods will most likely continue to evolve and progress as the as-a-service model becomes the norm.
Although these are some of the most recent sales tax changes in 2019, we are certain they will not be the last. With more marketplaces collecting and additional states passing sales tax laws, it’s critical for remote sellers to know where they have nexus, learn who is and isn’t collecting for them, and understand how to become fully compliant.
Automating sales tax relieves the burden from the seller and grants peace of mind around compliance. Finding a reputable solution like TaxJar provides accuracy through automation and allows businesses to focus on running their business rather than manually filing sales tax. To get started with TaxJar, start a free 30-day trial or sign up for a demo today.
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