SALT Strategies

Economic Expectations Push the DOW to Record High as States Seek Economic Nexus To Boost Their Coffers

dow.20K - Economic Expectations Push the DOW to Record High as States Seek Economic Nexus To Boost Their Coffers

Earlier this week, the DOW hit 20k for the first time in its 120 year history. A high water mark that some analysts believe signals the improvement in our Country’s economic future. Just as the DOW is hitting record highs, so has State and Local Tax Revenues. Based on 2015 State and Local Tax Collection data from the Census Bureau, the last complete year for which we have data, Total for All States’ Tax Revenue increased to $916.5 Billion up approximately $42 Billion from 2014. In addition, 47 states reported an increase in 2015 over their 2014 total tax collections

While there are differing opinions as to what has and is contributing to this historic high water mark, there is little disagreement that States are continuing to propose, adopt or implement more aggressive Nexus provisions in their pursuit to improve their Tax State of Economy. Over the next two posts, we will highlight the States’ increasing reliance on Economic and, with respect to Income Tax Nexus, Factor based nexus provisions to supplement their ability to gain tax jurisdiction over out of state businesses. Today’s post will focus on States’ adoption of Economic Nexus provisions in the Sales Tax Nexus arena.

2016 – A Year of Numerous Unexpected Events – Don’t Overlook Sales Tax Economic Nexus

In addition to Brexit, the Cubs winning the World Series and the 2016 US Presidential Elections unexpected results in 2016, the advent of several states adoption of economic sales tax nexus provisions may have flown under some companies and their advisors’ tax radars. In 2016, in direct defiance of the physical presence requirement set forth in Quill and in addition to the “click through” /“affiliate” [1] sales tax nexus legislation recently passed by numerous states, the following states adopted or made effective economic nexus provisions and administrative rules:

Alabama Adopts Economic Sales and Use Tax Rule

In October of 2015, The Alabama Department of Revenue adopted Ala. Reg. 810-6-2-.90.03 {“Regulation”}that is effective January 1, 2016. The Regulation sets forth Alabama’s economic nexus rule for sales and use tax with respect to out of state retailers.

Applicable to all transactions occurring after January 1, 2016, sellers that do not have physical presence in Alabama but who make over $250,000 of retail sales into the State may have sales tax nexus. Such out of state sellers who conduct one or more activities set forth in Alabama Code 40-23-68 are deemed to have substantial economic presence in Alabama.  It is important to note that some of the activities set forth in Alabama Code 40-23-68 do not require physical presence in the State.

Therefore, the Regulation is designed to create sales tax nexus without the remote seller having physical presence in the State. As such, these retailers will be required to register, collect and remit Alabama sales and use taxes.

South Dakota Enacts Economic Sales Tax Nexus Legislation

On March 22, 2016, South Dakota signed into law South Dakota S.B. 106 effective May 1, 2016 that adopts economic nexus for any seller with annual sales in excess of $100,000 or more than 200 separate transaction in South Dakota.

Vermont Enacts Sale Tax Economic Nexus and Vendor Notification

On May 25, 2016, Vermont Governor signed Vermont H.B. 873 that adopted sales and use tax economic nexus. In summary, this legislation will impose sales tax nexus on any person that has sales delivered to Vermont in excess $100,000 or 200 or more individual Vermont-destined sales transactions. In addition, this legislation contains sales and use tax notification requirements for non-collecting vendors. Both provisions are effective on the later of July 1, 2017 or beginning on the first day of the first quarter after a controlling court decision or federal legislation eliminates the physical presence test established in Quill.

Tennessee Adopts Economic Nexus Rule

On October 3, 2016, the Tennessee Department of Revenue filed with the Secretary of State a sales tax economic nexus rule Tennessee Rule 1320-05-01-.129, providing when out-of-state dealers have substantial nexus with the state. The new rule establishes nexus for out-of-state dealers lacking a Tennessee physical presence if they engage in regular or systematic solicitation of consumers in Tennessee through any means and make sales exceeding $500,000 to consumers in Tennessee during the previous twelve-month period. The rule requires such dealers to register with the state by March 1, 2017, and start collecting and remitting sales and use tax beginning July 1, 2017.

[1] See “Affiliate Nexus and State Sales Tax” by Annette Nellen, CPA, CGMA, Esq.

Keep Your Tax Radar On High Alert – Pending Sales Tax Economic Nexus Legislative Activity

In addition to the aforementioned states adoption of sales tax economic legislation and rules, according to the January 19, 2017 article, State Tax Policy in 2017: What to Expect as published in MULTISTATE INSIDER , during 2016 “we saw 42 bills introduced in 16 states last year, with five bills ultimately enacted (Alabama, Louisiana, Oklahoma, South Dakota, and Vermont).” The article further states that “2017 will be no different—eight states have introduced 11 nexus bills so far…” According to the same article the following states have nexus legislative activity that in my humble opinion require monitoring by your Tax Radar:

Indiana                        Minnesota                   Mississippi                   Nebraska

South Carolina           Virginia                        Washington                  Wyoming

The article further indicates that “The Wyoming bill, which is patterned after last year’s South Dakota legislation, already passed the first chamber and will now move on to the state senate.”

So the Sales Tax Nexus forecast for 2017 promises to be challenging and perhaps quite bumpy. For 2017, just as any wise investor is always ready for turbulence in the DOW, when it comes to Sales Tax nexus it may be prudent to heed the words of the Betty Davis character in the 1950 movie classic All About Eve and “Fasten your seatbelts. It’s going to be a bumpy night.”