The passing of South Dakota v. Wayfair has raised many questions surrounding sales and use tax and whether companies are required to pay in certain states. After the Wayfair decision, many states quickly enacted economic nexus standards with reporting requirements. A select few states, including Missouri, Kansas and Florida, have yet to pass legislation, leaving businesses confused on their nexus responsibilities. To help clear up the confusion, below we cover the most common nexus misconceptions we hear from companies in Missouri, Kansas and Florida.
Myth #1: If I don’t have a physical location in Missouri, Kansas or Florida I don’t need to worry about sales or use tax in these states.
Before South Dakota v. Wayfair, the landmark case of Quill v. North Dakota provided that a company must have an actual physical presence in a state in order for a state to require an out-of-state business to charge that state’s sales tax. The case of South Dakota vs. Wayfair determined that physical presence is no longer needed to have “substantial nexus” in a state, as required by constitutional law. Currently, Missouri, Kansas and Florida do not have economic nexus statutes in place, although bills are being pushed through the legislature on this topic.
Myth #2: These states will never pass legislation around economic nexus if they haven’t done so already.
Although not every state has enacted statutes on economic nexus, the South Dakota v. Wayfair decision has already started a ripple effect resulting in many more states enacting economic nexus standards. If your business currently ships tangible personal property out of your home state, this ruling is more than likely going to affect you now or in the future. It is important that companies track all sales made in each state to further determine if they do in fact have nexus in a jurisdiction where they are not registered.
Myth #3: I don’t have online sales, so economic nexus doesn’t apply to my business.
A common misconception of the South Dakota v. Wayfair ruling is that it only applies to online retailers with transactions in multiple states. While online retailers will definitely be affected, economic nexus applies to any sales, not just online. If a Missouri, Kansas or Florida company has sales outside of these states, it’s important to know the economic nexus thresholds and regulations in that state.
Myth #4: Economic nexus only applies to sales and use tax.
The South Dakota v. Wayfair ruling directly affects state and local sales/use tax collection for remote sellers, but the ruling may also impact state corporate income taxes and franchise taxes. States are revisiting their income tax nexus stances as a result of the ruling in regard to sales factor sourcing. Companies that do not have a physical presence in a state, such as employees, offices, facilities, etc., must look at the sourcing of their sales for purposes of the state’s sales factor to determine nexus.
The economic nexus regulations are continuously evolving in each state following the South Dakota v. Wayfair decision. Our State and Local Tax advisors are ready and available to help you remain compliant in all jurisdictions in which you are obligated to collect and remit tax. Contact an Anders advisor with questions specific to your business.
