How will South Dakota v. Wayfair affect your club?
INSIGHT ARTICLE |
We recently passed the one-year anniversary of the South Dakota v. Wayfair decision, the U.S. Supreme Court’s historic decision allowing states to impose sales and use tax obligations based solely on economic activity. Over the past months you may have noticed sales tax is now charged on many of your receipts for purchases made over the internet…but what does this mean for the typical private club from a sales and use tax perspective?
Almost three decades prior to Wayfair, the U.S. Supreme Court held that a taxpayer must have some physical presence in a state to be subject to collection responsibility for the state’s sales or use tax. The presence of the taxpayer’s in-state customers, without more, did not create nexus and did not allow a state to impose its sales and use tax. This standard meant that vendors, sellers or retailers would not have to collect sales and use tax in states they sold to where they did not have a physical presence.
The June 2018 Wayfair decision eliminated that physical presence requirement after reviewing a South Dakota law which imposed a sales tax collection and remittance obligation on remote sellers when gross revenue from sales of tangible personal property or services exceeded either: 1) $100,000, or 2) 200 or more separate transactions. While Wayfair allows states to establish nexus rules based on economic activity, the actual thresholds may vary greatly among the states.
From a sales tax collection perspective, it is unlikely that most private clubs will make out-of-state sales in excess of a remote seller threshold, such as the $100,000 in sales or 200 transactions in a given year. However, if a club makes significant out-of-state sales, such as from sales of merchandise or equipment, or provides services in other states, the club should review its sales and transaction data for potential sales and use tax nexus exposure in those states.
Where are we now?
On the one-year mark, every state with a general sales tax has adopted an enforcement date for economic sales tax nexus except for Florida, Kansas and Missouri. Those state legislatures have adjourned for the year and, pending any special sessions, appear unlikely to address a remote seller sales tax threshold in 2019. Louisiana, which is the only other state pending adoption, has recently cleared the way to enforce economic sales tax nexus within the next 12 months.
Importantly, these nexus provisions continue to be in a state of flux with new statutes, regulations and guidance issued on an almost weekly basis. A number of states anticipate future guidance or enforcement as taxing authorities consider supplementing current economic nexus provisions with detailed regulation and policy.
From a use tax perspective, you may notice some of your out-of-state vendors, that have historically not collected sales tax and for which you may have been accruing use tax, now invoicing sales tax on those same purchases. This could be beneficial to the club as the accounting staff would spend less time reviewing invoices for use tax issues—however, accruing use tax on purchases where sales tax was also paid would create refund opportunities. Special attention should be given to out-of-state vendors to avoid double sales and use tax payments.
Should your club have significant out-of-state sales activity, or if the club is unsure how Wayfair could affect interstate sales activity, please contact your state tax adviser to discuss compliance with economic sales tax nexus provisions and minimize potential exposure.
Economic sales tax nexus laws permitted by the Court; physical presence sales tax nexus is no longer the Constitutional standard.