In the Wayfair v. South Dakota decision in 2018, the U.S. Supreme Court opened the door for states to collect sales taxes on remote retailers with substantial in-state activity. Prior to the decision, states followed the physical-presence standard to determine whether a taxpayer would be subject to state and local taxes.
More than 30 states revisited or are revising their state and local tax requirements in light of the Supreme Court ruling. Many are implementing the South Dakota thresholds: Taxpayers with more than $100,000 in local sales of tangible personal property or products or services delivered within the state or more than 200 separate transactions that resulted in in-state deliveries of goods or services will be required to collect and remit sales taxes. Rhode Island and Massachusetts are revisiting previous legislative attempts to capture sales tax from remote retailers. Following is a closer look at the impact Wayfair is having on each state.
Rhode Island starts collecting sales tax from SaaS
Rhode Island also had a law on the books for collecting sales and use tax from remote retailers (noncollecting retailers in the statute’s language). The statute took effect in 2017. Noncollecting retailers that make $100,000 or more in gross revenue from sales in the state or conduct 200 or more transactions in the state in the previous calendar year must either collect and remit sales tax or provide notices to their in-state customers to alert them that they may owe sales or use taxes on the transaction.
[R.I.] announced software as a service … would be subject to sales tax.
In July, the R.I. Department of Revenue issued an FAQ document about the impact of the Wayfair decision on Rhode Island’s sales tax policies. Although it did not specifically mention the effective date, the FAQ document advises taxpayers to review the law to determine whether they would be subject to the registration requirement as of 2017.
As a separate issue, Rhode Island also announced software as a service, or SaaS, would be subject to sales tax starting Oct. 1, 2018, for all SaaS Rhode Island-based end users.
Massachusetts reaffirms sales tax position
Massachusetts had previously tried to capture sales tax from remote vendors. In 2017, the Mass. Department of Revenue issued the Vendors Making Internet Sales regulation, which set up parameters for when remote vendors would be required to collect and remit state sales and use tax. The regulation took effect Oct. 1, 2017, and applied to retailers that had $500,000 or more in internet sales that resulted in in-state deliveries in 100 or more transactions. This included the use of software within Massachusetts.
The Mass. Department of Revenue reaffirmed its position and thresholds for state sales tax nexus in September 2018 and clarified it will be enforcing its sales and use tax regulation from the regulation’s original effective date.
Work ahead for multistate remote retailers
The specifics of the thresholds of economic activity, the types of transactions that count toward the economic activity thresholds and the timing of the law changes vary from jurisdiction to jurisdiction, so retailers with a wide geographic presence will need to evaluate their sales tax compliance requirements very carefully.
Tarra Curran is a managing director at CBIZ & MHM New England, with offices in Providence and Boston.