Pennsylvania Economic Sales Tax Nexus Thresholds Established
On June 21, 2018, the Supreme Court overruled Quill Corporation v. North Dakota (a 1992 Supreme Court decision) with their decision in South Dakota v. Wayfair Inc. The 1992 Quill decision prohibited states from collecting sales taxes from retailers unless they had a physical connection with the state. However, with the 2018 Wayfair decision, the Supreme Court concluded that its earlier decision in Quill was incorrect; a physical presence nexus rule is not required by the Constitution’s Commerce Clause. As long as a vendor has a substantial nexus with a taxing state and the tax does not create an undue burden to that vendor, an economic presence is sufficient to require the vendor to collect sales tax.
Back in 2016, South Dakota passed a law requiring any online seller, whether they have a physical presence in the state or not, to collect South Dakota sales tax if they either made more than $100,000 in gross sales in the state in a calendar year or made over 200 individual sales in the state each year. They followed up this action by suing Wayfair and several other eCommerce retailers who currently did not collect South Dakota sales tax. When the Supreme Court ruled in favor of South Dakota, this opened the door for the remaining states to revise their own sales tax nexus thresholds by basing them on economic factors rather than on physical presence factors.
In response to the Supreme Court’s decision in the Wayfair that a physical presence was not required by the United States Constitution, and that economic nexus is sufficient, Pennsylvania has issued Sales and Use Tax Bulletin 2019-01 which will become effective on July 1, 2019. The Bulletin, initially released on January 8, 2019 and revised on January 11, 2019, asserts that economic nexus applies to businesses with more than $100,000 of gross sales into the Commonwealth of Pennsylvania during the previous twelve months.
Under the Bulletin, all marketplace facilitators (such as Amazon, eBay, etc.) and online sellers who have economic nexus (Pennsylvania annual gross sales of greater than $100,000) must now register, collect and remit Pennsylvania sales tax starting July 1, 2019. The sales threshold will be measured by calendar year with the first annual collection period ranging from July 1, 2019 – March 31, 2020 using calendar year 2018 sales to determine nexus. Subsequent years will follow the same collection period. There is no minimum number of transactions provided as an alternative, unlike the South Dakota statute in Wayfair.
Act 43 of 2017 requires certain individuals or businesses facilitating, making or referring sales to Pennsylvania customers to make an election to either: 1) register to collect and remit Pennsylvania sales tax; or 2) elect to notify their customers that use tax may be due, and report to the PA Department of Revenue the customers names, addresses and aggregate dollar amounts of each customer’s purchases. The provisions of Act 43 remain applicable to vendors that have neither physical presence nor economic nexus with the Commonwealth including marketplace sellers and online retailers with annual Pennsylvania taxable sales of greater than $10,000 but less than $100,000 in total sales.
However, as noted above, all marketplace facilitators and online sellers who have economic nexus (Pennsylvania gross sales of greater than $100,000) must now register, collect and remit Pennsylvania sales tax and no longer have the option of notifying their customers that use tax may be due and reporting certain customer information to the Commonwealth. Therefore, these sellers are no longer subject to the provisions of Act 43 of 2017.
The provisions of the Bulletin shall apply to transactions that occur on or after July 1, 2019. It is likely that much of Sales and Use Tax Bulletin 2019-01 will become part of a legislative package. Louis Plung & Company will keep you abreast of any developments with this issue. In the meantime, if you have any questions as to how these changes will affect you or your business, please contact us for assistance.