US sales tax - states are rushing to tax remote sellers

Over two years on from the landmark Wayfair tax ruling, the US states are looking to extend the tax net further on foreign, or 'remote' sellers.

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The June 2018 South Dakota vs Wayfair Inc. US Supreme Court ruling opened the option for US states to tax remote sellers for the first time.

The case upended the test of whether a remote business was responsible for sales tax from ‘physical nexus’ and added the concept of ‘economic nexus’. This change means selling to a state’s businesses or consumers, without local staff, stock or premises, now triggers the obligation to register with the state and other tax jurisdictions. The concept of physical nexus did not get replaced – i.e. storefronts, remote sales reps and tradeshow attendance can still trigger a registration requirement – but economic nexus was simply added to the list of criteria.

Since 2018, the majority of states have updated their sales tax obligations on remote sellers, and co- opted marketplaces as tax collectors, too.

States impose economic nexus on remote sellers

• Jun 2018: 3 states obliged remote businesses to collect sales tax
• Sep 2019: 35 states have introduced economic nexus test on remote businesses
• Dec 2019: 43 states oblige remote businesses to charge sales tax

Marketplaces now obliged to collect remote sellers’ tax 

• Jun 2018: 7 states obliged marketplaces to collect taxes on behalf of their sellers 
• Sep 2019: 15 states had imposed the responsibility onto marketplaces to act as the sellers’ tax collections agent 
• Jan 2020: 34 states have implemented marketplace tax obligations for their sellers 

What’s happened in 2020? More taxes on digital services 

Many of the reforms bringing remote businesses into the sales tax net are in place for 2020. This excludes the District of Columbia (DC), which while not technically a state, administers sales tax as states do. Only two of the 45 states with a sales tax regime have yet to put forward amending legislation. 

Into 2020, the focus has moved onto extending the range of taxable transactions. In particular, digital or electronic services. These are all subject to VAT in Europe and much of the rest of the world. But US states have limited, and very inconsistent, services liabilities to sales tax. Key electronic services that may catch the attention of legislators include: 

• Streaming and download media 
• Apps and games 
• E-learning
• E-books and digital publications 
• Membership to online clubs 
• Software-as-a-Service (SaaS)