Utah adopts economic nexus in the wake of Wayfair

Update 12.26.2018: Additional information regarding remote seller sales tax collection obligations is available from the Utah State Tax Commission.

The Utah Legislature held a special session on July 18, 2018, during which it approved an economic nexus measure for sales tax. If Governor Gary Herbert signs it into law, out-of-state sellers that do a certain amount of business in Utah will be required to collect and remit Utah sales tax starting January 1, 2019.

Senate Bill 2001 requires an out-of-state seller to collect and remit Utah sales and use taxes if in the previous or current calendar year that seller:

• Receives gross revenue from the sale of tangible personal property, any product transferred electronically, or services for storage, use, or consumption in the state of more than $100,000; or
• Sells tangible personal property, products transferred electronically, or services for storage, use, or consumption in the state in 200 or more separate transactions.

These thresholds echo those in South Dakota Senate Bill 106, a law responsible for turning sales tax collection precedent on its head.

States lacked the authority to tax businesses with no physical presence in the state for decades. In 1992, the Supreme Court of the United States upheld the physical presence limitation in Quill Corp. v. North Dakota. On June 21, 2018, the court overruled Quill’s physical presence rule in South Dakota v. Wayfair, Inc.

South Dakota SB 106 challenged Quill’s physical presence rule, stating that the state’s inability to tax remote sales was “seriously eroding the sales tax base” and causing “revenue losses and imminent harm to this state.” In a move that surprised many, the Supreme Court ruled in favor of South Dakota. Although physical presence in a state still triggers a tax obligation, it’s no longer the sole requirement: Economic and virtual activity in a state may be enough.

Approximately 20 states have adopted economic nexus measures similar to South Dakota SB 106 — see a list here. Utah is one of several others, including New Jersey, looking to do the same.  

Get up-to-date news about changing state economic nexus laws and their potential impact on your business here.