Economic nexus continues to be a hot topic in the sales tax world. Since the U.S. Supreme Court Case of South Dakota v. Wayfair (June 2018), almost all states have enacted economic nexus laws as they want their share of revenue from businesses selling to customers in their state. In this week’s blog, we’ll take a look at Kansas and their struggle to get an economic nexus law on their books as well as an update on other states that have economic nexus laws.
Reminder- What is Economic Nexus?
In the past, companies needed to have physical presence, or “boots on the ground,” in a state in order to have nexus (or taxable presence) in a state. This meant that a company needed to have offices, inventory, employees, or contractors in a state for a certain amount of time. Companies now don’t necessarily need to have physical presence in a state in order to create nexus; they now can have nexus in a state by virtue of economic nexus. Economic nexus means that companies need to have sales of a certain dollar amount or needs to have a certain number of transactions within a state. Some states require both criteria.
In most states, economic nexus is based on a sales or transactions threshold- if either is met, economic nexus is triggered. Additionally, some states base their economic nexus threshold on taxable sales, while other states mention gross sales. Many states follow the South Dakota model of economic nexus creation with either $100,000 of sales or 200 transactions.
What is the Deal with Kansas?
Kansas had been one of the states holding back from enacting economic nexus legislation. In a recent article by the Tax Foundation of America, they explain the dispute raging on between the Kansas Department of Revenue and the state’s Attorney General. As it currently stands, all remote sellers with no physical presence in Kansas must register, collect and remit sales tax. This legislation had an effective date as of October 1. Unlike other states, Kansas does not have a dollar amount threshold nor a transaction number threshold. As such, Kansas is now the first state to not have a safe harbor rule. The safe harbor caveat protects small businesses.
Prior to the October 1 effective date, the Attorney General’s office published a nonbinding statement that said the legislation issued by the Department of Revenue was unconstitutional and invalid. The Department responded by saying that their legislation is sound and remains in effect.
Kansas has put taxpayers in a bad situation. Companies want to comply with the rules, but are receiving conflicting information as to how to proceed. Contact us for questions in Kansas.
New York Bumps up their Threshold Amount
New York is one of the most aggressive states when it comes to tax enforcement. However, New York’s economic nexus dollar amount threshold had previously been $300,000 as it officially came on board with enforcement of their law several months after the Wayfair decision and with very little guidance. But on June 24, 2019, New York enacted legislation to raise the state’s economic nexus threshold to $500,000 and 100 transactions (which did not change). Now New York is joining its heavyweight counterparts of California, Tennessee and Texas for being the states with the largest threshold amounts.
Other States Finally Onboard
October 1 seemed to be another popular date for states to come on board with economic nexus legislation or for states to modify their existing laws. The states that had an effective date of Oct. 1 include Arizona and Texas.
Note that as of Oct. 1, the threshold in Massachusetts went down from $500,000 in sales and 100 transactions to just $100,000 in sales; they have eliminated the number of transactions as part of the threshold.
We also note that as of Oct. 1, Minnesota has changed its rules from 10 transactions or more in sales totaling $100,000 or 100 related sales to a more traditional $100,000 in sales or 200 transactions.
As states continue to tweak thei thresholds and fine tune legislation, the complexity for companies continues. Add to that the many states which have also enacted Marketplace Facilitator rules and it can be confusing.