In a number of ways, 2020 has been a year of unprecedented change. In the world of online sales and use tax, which has already seen significant change over the last two years, legislation is quickly being adapted to fit the ‘new normal’ that has resulted from the COVID-19 pandemic. More specifically, the fallout of the pandemic has significantly affected Wayfair-related legislation and how it is being applied.
These laws, which came about after the 2018 Wayfair ruling, have allowed over 40 states across the country to implement economic nexus and marketplace facilitation guidance. In a time when states are looking for ways to make up for lost revenue and to fill budget deficits caused by the pandemic, these laws are prime targets.
Economic Nexus During the Pandemic
As mentioned above, the last two years have seen dramatic change for online sales tax due to the Wayfair ruling. Only two states with a general sales tax have yet to implement some sort of Wayfair-related legislation. However, the pandemic may finally push lawmakers to pull the trigger.
As shared in this article from Avalara, Florida lawmakers introduced an economic nexus bill in August 2019, which progressed through the rest of the year and beginning of 2020, but died in appropriations in March 2020. However, the economic fallout of COVID-19 in Florida, which relies heavily on sales tax collected by in-state businesses, may yet cause lawmakers to change their tune.
Missouri, the other state with a general sales tax that has yet to pass economic nexus legislation, is in a similar situation. The Missouri legislative session ended in May 2020 without a resolution regarding their latest economic nexus bill, but there have been calls by lawmakers for a special session to discuss the possibility of a remote sales tax requirement. Time will tell if this comes to fruition.
Doubling Down On Online Sales Tax Collection
For those states that have already passed Wayfair-related legislation, ensuring the proper collection and remittance of the tax dollars is the focus. We recently wrote about the increased scrutiny on third-party delivery services as a result of the pandemic. The same can be said of retailers in other industries as well.
The pandemic caused an explosion of online shopping during the spring, and as a result, states saw an increase in tax revenue from online sales tax collections. Additionally, many retailers may have triggered economic nexus in more states than they ever have before.
With all this in mind, states are now paying more attention than ever to retailers failing to properly comply with economic nexus or marketplace facilitation requirements and are looking to double down on ensuring compliance to further bolster tax revenue. One specific area of concern is the accuracy and availability of sales tax software. In July, a group of U.S. senators from New Hampshire and Oregon penned letters regarding these concerns and sent them to a number of sales tax software developers.
Economic Nexus and Marketplace Facilitator Thresholds
In late June, Tennessee and North Carolina lawmakers made changes to their Wayfair-related legislation, introducing and subsequently passing the bills in less than two months each.
The Tennessee bill, SB 2932, reduces the sales threshold for economic nexus from $500,000 to $100,000. It will also apply to marketplace facilitators as they’re required to collect and remit Tennessee sales tax on behalf of third-party sellers. The bill will go into effect on October 1, 2020.
North Carolina’s bill, HB 1080, removes any economic nexus threshold for marketplace facilitators that also have a physical presence in the states. Additionally, marketplace facilitators that deal with the sales of food or beverages will need to remit local meals tax. The legislation went into effect July 1, 2020.
While lawmakers may have already been considering these, or other similar changes, the speed at which they were introduced and passed was no doubt influenced by the pandemic and the need for additional sources of revenue.
As the pandemic continues to drag on, we expect similar changes from other states during upcoming legislative sessions.
Do You Have Questions About Economic Nexus Compliance?
If you have questions about economic nexus compliance, or any other tax issues, please contact us today. We’re happy to clarify any multi-state tax issues you’re trying to navigate.
