In June 2018, the Supreme Court of the United States overruled its long-standing precedent requiring a business to have a physical presence in a state before it could be required to collect state sales tax. In South Dakota v. Wayfair, Inc., the Supreme Court determined that a seller’s “economic” presence or nexus is sufficient to require a seller to collect a sales tax. However, states must be mindful not to place an undue burden on out-of-state sellers. Simply put, absent an undue burden, states are free to impose a sales tax on out-of-state sellers without a physical presence in the state.
In accordance with the Supreme Court’s ruling, the Pennsylvania Department of Revenue (“DOR”) recently issued a new rule stating that a substantial economic nexus satisfies the Pennsylvania Tax Reform Code’s definition of “maintaining a place of business in Pennsylvania,” thereby requiring out-of-state sellers to collect and remit Pennsylvania’s sales tax (the “Nexus Rules”).
In an effort to prevent potential claims of undue burden, the Nexus Rules only apply to sellers with more than $100,000 in taxable sales to Pennsylvania buyers within the previous twelve (12) months. The Nexus Rules also apply prospectively, effective July 1, 2019, and out-of-state sellers may rely on DOR-certified service providers who will offer sales-tax processing software and assist sellers in determining what products and services are taxable. If a seller relies on the advice of a certified service provider to determine taxability, it will be relieved of liability if it is audited.
The DOR also clarified how the Nexus Rules will interact with Pennsylvania’s Marketplace Sales Act (the “PMSA”). The PMSA requires any company selling at least $10,000 of merchandise to Pennsylvania residents annually through the company website or a third-party platform such as Amazon, eBay or Walmart to either to collect sales tax from the buyer at the point of sale or, alternatively, send annual tax notices to its customers. Now, under the Nexus Rules, if such company exceeds $100,000 in sales within the previous twelve (12) months, it is required to begin collecting sales tax. These companies no longer have the option to send annual tax notices to their customers.
For additional information about the Nexus Rules and their impact on your business, please contact the attorneys in Parker McCay's Corporate Department.
The content of this post is for informational purposes only and should not be construed as legal advice or legal opinion. You should consult a lawyer concerning your specific situation and any specific legal question you may have.