On Dec. 14, 2018, the Texas Comptroller of Public Accounts amended regulations that outline the substantial nexus requirements for remote sellers, responding to the recent U.S. Supreme Court’s decision in South Dakota v. Wayfair.
Specifically, the Comptroller amended the definition of “engaged in business” in the state of Texas to include activities such as engaging in regular or systematic solicitation of sales of taxable items in the state and soliciting orders for taxable items by mail or through other media including the Internet. “Wayfair-style” sales thresholds were also promulgated.
Out-of-state businesses with Texas sales in the preceding 12 calendar months of more than $500,000 are required to obtain a sales and use tax permit, and collect and remit the sales and use tax. The initial twelve calendar months for determining if a business has exceeded the safe harbor is July 1, 2018, through June 30, 2019. Businesses must begin collecting the tax no later than the first day of the fourth month after the month in which the safe harbor amount was exceeded. For example, a business would need to obtain a permit and begin collecting on Oct. 1, 2019, if the safe harbor is exceeded in the July 1, 2018, through June 30, 2019 period.
Businesses can discontinue sales and use tax collection if total Texas sales fall below $500,000 for the preceding 12 calendar months. The remote seller would need to notify the Comptroller of the intent to stop remitting the tax. Remote sellers who previously terminated a sales and use tax permit and exceed the safe harbor, must obtain a permit and begin collection of use tax by the first day of the second month after the month in which the safe harbor was exceeded.
The Texas Comptroller’s $500,000 sales threshold and no transaction threshold appears to help simplify compliance for remote retailers. With an effective date of Oct. 1, 2019, the Comptroller is providing businesses an opportunity to plan accordingly. Additionally, a bill pre-filed in the Texas legislature proposes a single combined local rate for remote seller tax collection, easing the burden on remote sellers from having to collect individual local sales and use taxes at many different rates. Taxpayers with Texas sales are encouraged to contact their state and local advisers to discuss how the new amendments may affect their sales and use tax obligations and to determine if there are benefits to adjusting activity in Texas.
Texas is one of the few larger states to address an enforcement date for economic sales tax nexus, as Florida and New York have yet to confirm enforcement. California recently provided post-Wayfair guidance with a $100,000 sales or 200 transaction threshold scheduled to be enforced on April 1, 2019. Approximately 30 other states have addressed an enforcement date for economic sales tax nexus, with several more states becoming effective on Jan. 1 and Feb. 1, 2019.