As Santa’s sleigh closes out the Macy’s Thanksgiving Day Parade and the turkey’s tryptophan begins to work its magic, people’s thoughts begin drifting towards getting their holiday shopping done early. For those that look to make purchases online or through catalogs, this year marks the first holiday shopping season post-Wayfair and may be their first exposure to the new economic nexus rules.
Since the Supreme Court’s ruling in South Dakota v. Wayfair, Inc., many states have rushed to enact economic nexus provisions which would require retailers with no physical presence in a state to collect sales tax on transactions with customers in the state, provided the retailer exceeds certain sales thresholds. Many states' rules went into effect on Oct. 1, including Illinois, Maryland, Michigan, and Washington. New Jersey, North Carolina, and South Carolina’s went into effect on Nov. 1. This means that this year’s post-Thanksgiving sales will be the first to take place after the wide-scale adoption of such standards.
However these South Dakota-style economic nexus rules won’t affect every online sale. They do not currently affect “marketplace” sales, where an online retailer provides space for third-parties to sell to customers. Retailers such as Amazon do not currently collect sales tax on marketplace sales universally, but several states have enacted legislation imposing an economic nexus standard on marketplace sales and more may soon move in that direction.
Of course, even if retailers do not collect sales tax on an online purchase, the customer would still owe use tax. But state efforts to collect use tax directly from consumers have always been spotty and inefficient, and states have argued that without an economic nexus standard they were losing out on millions in tax revenue.
The states’ theory that making online retailers collect sales tax will be both feasible and generate much needed revenue will be put to the test this holiday season.
Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: Will states see a large increase in sales tax collection this weekend?
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