STATE INCOME TAX NEXUS FOR REMOTE SELLERS
October 30, 2022 - Douglas Myser
State income tax nexus for remote sellers. Since more and more large companies, including Google and Amazon have been raking in billions in profits without paying cross border taxes in states they are not domiciled in, South Dakota took the Wayfair Furniture Company to court, as it mainly did business online, and the case went all the way to the U.S. Supreme Court, which ruled for South Dakota, and caused large companies earning massive amounts to have to pay for sales they made across state lines. That was in 2018. That case has given ammunition in the fight for additional revenue for those who need revenue and are targeting sellers of just about anything, if they do it online. State income tax nexus for remote sellers.
P.L. 86-272 or 15 U.S.C. Sections 381-384, is one of the few limits on states ability to subject persons to a net income tax. It applies when a person's activity in a state is limited to the solicitation of sales of tangible personal property and any resulting orders are approved and shipped from outside the state. The case law for that was Northwestern States Portland Cement Co. v. Minnesota, 358 U.S> 450 (1959). The court held that Minnesota could impose a tax on an Iowa based business whose sole business activity was soliciting orders from customers in the state. Then the Multistate tax commission came to be and the regulatory scheme to tax started, and gained momentum after the Wayfair decision.
The Multistate tax commission is designed to promote consistent tax policy and administration among the different states. It release three separate statements from 1993 to 2001 trying to clarify policy. ItT stated that if sales exceeded $50,000 of property for a tax year nexus should apply, or $50,000 of payroll, or $500,000 in total sales for the taxable year or 5% of total property, total payroll or total sales for the taxable year, then nexus would be established. Additional information may be found at the IRS website.