By Savannah Gilmore
In 2018, the buzzwords in most state tax conversations were "remote sales taxation."
The U.S. Supreme Court handed down a landmark decision in South Dakota v. Wayfair, eliminating the requirement that businesses must be physically present in a state before their sales can be taxed and granting states the ability to collect taxes from out-of-state internet retailers.
For nearly two decades—LeBron James was a freshman in high school when we started tracking this issue—NCSL has championed efforts in Congress and in the states to fix the remote sales tax issue. It has been eight months since the decision, and remote sales tax is still a prominent topic in state tax conversations.
The case centered around a South Dakota law that required out-of-state remote sellers with a certain number of sales into the state to collect and remit sales taxes. The court sided with South Dakota because the state showed that such a requirement was not overly burdensome for interstate sellers.
The court’s majority made specific note of the fact that South Dakota’s law was not retroactive and provided a safe harbor for smaller remote vendors. The court also noted, in response to concerns that the collection requirement will be overly complex for small businesses, that South Dakota has signed on to the Streamlined Sales and Use Tax Agreement, which standardizes taxes across states to lower compliance costs, requires state-level tax administration, and provides internet vendors with access to sales tax administration software paid for by the state. Sellers who use the software are immune from audit liability.
Numerous states with a sales tax and the District of Columbia have taken action to enforce remote sales tax collection. As of Feb. 7, 28 states and the District of Columbia require remote sellers to collect taxes. Several more states allow businesses to elect to collect or report on remote sales. States that have taken legislative action post-Wayfair have generally modeled their laws after South Dakota, but some collection efforts have been led by departments of revenue if statutory authority was already provided.
NCSL’s Executive Committee Task Force on State and Local Taxation developed principles of state implementation after South Dakota v. Wayfair. It offers a first step for policymakers to consider as they look to establish the new laws and regulations required to gain collection authority.
A growing trend in remote sales taxation is marketplace collection. Marketplace provisions aim to transfer collection responsibilities from third-party sellers to marketplace facilitators. Marketplace facilitators refer to a marketplace that contracts with third-party sellers to sell goods and services through the marketplace’s platform.
States began enacting these laws in 2017. As of Jan. 23, 10 states and the District of Columbia have marketplace facilitator collection provisions, which will trigger these online platforms to collect and remit taxes for their third-party sellers.
Be sure to check out NCSL’s updated webpage highlighting state remote sales tax collection. It contains detailed information on the Streamlined Sales and Use Tax Agreement, state action on remote sales tax collection, revenue matters and federal legislation. Additionally, it highlights NCSL’s federal correspondence post-Wayfair.
Savannah Gilmore is a policy associate in NCSL's Fiscal Affairs Program.