Sales Tax “Nexus”: Online Sellers Beware

The Supreme Court’s decision in South Dakota v. Wayfair, which removed the physical presence test as a requirement for states to impose sales tax nexus, has altered the sales tax landscape of nearly every state since it was decided two years ago.

“Under Wayfair, simply making some significant amount of sales into a state was enough for a state to require collection of sales tax. That caused a lot of online sellers who had previously not had collection responsibility to suddenly have the responsibility,” said Harley Duncan, managing director and leader of the state and local tax group in the Washington National Tax practice of Big Four firm KPMG LLP.

Duncan sees two areas where sellers face greater burdens and have more difficulty coming into compliance. “Small remote sellers where the marketplace is not involved may have been collecting in one or two jurisdictions, but don’t have the infrastructure to scale up to 45 jurisdictions,” he said. “They need advice on how to register, where to register, and what’s taxable. The other area involves foreign sellers that sell directly into the U.S. over a website. There’s a greater lack of familiarity with sales tax and collection responsibilities. It’s a much different environment for them. We see efforts to come into compliance, but that’s an area that’s still unfolding.”