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Pennsylvania And The Economic Nexus Bandwagon- No April Fools!



As you know from reading our blogs, multi-state tax can be difficult to navigate! When businesses sell their products across state lines, they need to think about whether they have taxable presence, or nexus, in the state and if their products are taxable.

Generally companies establish nexus by having a physical presence in the state. However, several states have recently been pushing the boundaries of defining the physical presence notion in order to generate more revenue. The concept of “economic nexus” is gaining greater momentum.

There is yet another state that has enacted an economic nexus law. As of April 1st, the Pennsylvania Department of Revenue (DOR) began requiring online retailers with sales of $10,000 or more to collect the state’s 6% sales tax, if they had not (by March 1) elected to report their customers to the state.

The Next State: Pennsylvania  

This new law, which went into effect on Easter Sunday, requires companies that ship or sell products to customers in Pennsylvania collect sales tax. It requires the tax collection even if the business has no physical address in PA. Essentially any online retailer that sells more than $10,000 worth of merchandise to PA customers will be required to collect the taxes.

For more information on this law, click here.

Per PA DOR Sales and Use Tax Bulletin 2018-01, the law impacts marketplace sellers and facilitators as well as remote sellers, as follows: Act 43 gives certain marketplace facilitators, remote sellers, and referrers the option to either collect and remit the sales tax that is due on taxable sales within the Commonwealth, or elect to notify their customers that use tax may be due, and report to the Department the customers names, addresses, and aggregate dollar amounts of each customer’s purchases.

A “remote seller” is anyone other than a marketplace facilitator, marketplace seller, or referrer, who does not maintain a place of business in Pennsylvania, but who sells tangible personal property that would be subject to sales tax here.

On or before March 1, 2018, a remote seller, a marketplace facilitator, or a referrer who is not maintaining a place of business within the Commonwealth, but who had aggregate taxable sales in Pennsylvania worth at least $10,000 in the prior twelve months, must either file an election with the Department to collect and remit sales tax going forward, or comply with the notice and reporting requirements. (Unfortunately the date to make the election has passed.)

Only those marketplace facilitators who do not maintain a place of business within the Commonwealth are allowed to elect to collect, or give notice and report.

Finally, for remote sellers meeting the threshold level of sales in Pennsylvania, there are no circumstances where an election is not required.

Failure to make the required election is deemed an election to comply with the notice and reporting requirements. An election to provide notice and report can be switched to an election to collect by filing a new election at any time during the fiscal year the notice and report election is valid.

Consequences Of The Law

Several states have enacted these types of laws (AL, SD etc.) but this one has a very low threshold at just $10,000. While we wait for the U.S. Supreme Court to hear the Wayfair Case, we expect to continue to see more states enacting these types of laws. Hold on tight!

Have a question? Contact Monika Miles.

Your comments are always welcome!

Monika Miles

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.