Idaho looking to expand remote sales tax law

Update 4.10.2019: Idaho House Bill 259 has been enacted. As of June 1, 2019, it requires any retailer without a physical presence in the state and more than $100,000 in cumulative gross receipts from sales delivered into Idaho in the current or previous calendar year to register as a retailer and collect and remit Idaho state sales tax, but not applicable local sales taxes. There's been no further action on the similar HB 239, described below.

A few months before the Supreme Court of the United States overruled the physical presence rule, thus freeing states to tax remote sales, Idaho enacted a click-through nexus law that imposed a sales tax collection obligation on remote sellers. Now lawmakers in the Gem State are considering another remote sales tax law.

Under Idaho’s existing click-through nexus law, a remote seller must collect and remit sales tax if:

• It has an agreement with an Idaho seller to refer potential buyers to the seller for a commission paid on resulting sales; and
• Total sales from such referrals to Idaho buyers exceed $10,000 in the preceding 12 months.

When enacted in March 2018, the law was at odds with the erstwhile physical presence rule, under which states could only impose a sales tax collection obligation on a business with a physical presence in the state. However, the law took effect July 1, 2018 — 10 days after the Supreme Court ruled in South Dakota v. Wayfair, Inc. (June 21, 2018) that physical presence was no longer the only requisite for sales tax collection.

The Idaho State Tax Commission wasted no time in enforcing click-through nexus, playing hardball with non-collecting sellers. In August, it let 500 non-collecting out-of-state retailers know they “may meet the law’s requirements to collect Idaho sales tax.” It also announced that it was “carefully analyzing how the U.S. Supreme Court’s recent ‘Wayfair’ ruling affects out-of-state retailers making sales to Idaho citizens.”

Although the Supreme Court didn’t replace the physical presence rule with a similar bright-line test, it did determine a remote business could establish a sales tax collection obligation through “economic and virtual contacts” with a state, or economic nexus.

More than 30 states adopted economic nexus laws before the end of 2018, and lawmakers in many states are pursuing economic nexus laws now. Many are also working to implement marketplace sales tax laws, under which marketplace facilitators are required to collect and remit sales tax on behalf of third-party sellers.

Idaho joined the party on March 5, 2019, with the introduction of House Bill 239.

Economic nexus

According to the measure’s statement of purpose, the legislation “meets the test determined by the Wayfair ruling.” Like South Dakota’s economic nexus law, it includes a small seller exception, prohibits retroactive application of the law, and reduces the burden and administrative costs associated with sales tax compliance by using one agency (the Idaho State Tax Commission) to administer sales and use tax.

HB 239 imposes a sales tax collection obligation on any retailer without a physical presence in Idaho that has more than $100,000 in cumulative gross receipts from sales delivered into Idaho in the previous or current calendar year. Such retailers are precluded from collecting “any local sales tax or any other tax or assessment that is not imposed by this chapter.” It’s worth noting that few local jurisdictions in Idaho impose a local sales tax.

If enacted, economic nexus would take effect June 1, 2019.

Marketplace sales

The measure also requires certain marketplace facilitators to collect and remit tax for all marketplace sellers. This collection requirement applies to any marketplace facilitator with a physical presence in Idaho (e.g., a warehouse), as well as any remote marketplace facilitator that has more than $100,000 in combined sales into the state (its own and those by its sellers).

Idaho is one of more than 20 states seeking a marketplace facilitator sales tax collection requirement in 2019. More than a dozen states have already enacted such a law.

Taxing remote sales and requiring marketplace facilitators to collect sales tax on all marketplace transactions is expected to generate $30 million in sales and use tax revenue for the state in fiscal year 2020, and $34.5 million in fiscal year 2021.

It’s becoming increasingly challenging to keep up with state remote sales tax laws. Our up-to-date state-by-state list of remote sales tax laws can help.