New Jersey and Pennsylvania React to Wayfair Decision on Nexus Thresholds
NJ & PA React to U.S. Supreme Court Wayfair Decision
Our July 24, 2018 blog alerted our readers to the U.S. Supreme Court’s landmark decision that physical presence is no longer required for a state taxing authority to find that a company has sufficient contact with that state to make it subject to the state’s sales tax reporting requirements. Wayfair was an out-of-state retailer that South Dakota successfully prevailed at the U.S. Supreme Court in finding that it had sufficient nexus (contact with the state) to make it subject to South Dakota’s sales and use taxes.
South Dakota’s threshold for finding nexus was that the out-of-state retailer had at least $100,000 in sales delivered to the state or the retailer had at least 200 transactions in a year in the state. We noted in our blog that the Supreme Court did not rule whether these amounts were a required threshold or simply indicative of substantial nexus. We had forewarned our readers that states may push the envelope by implementing lower thresholds than S. Dakota did. Let’s look at how two states have reacted.
New Jersey has ruled that effective November 1, 2018, sellers of property, specified digital products and taxable services that meet NJ’s threshold must collect sale tax or comply with the use tax notice and reporting requirements for non-collecting sellers.
What is the NJ threshold? Nexus is triggered if the seller had gross revenues of more than $100,000 OR 200 or more separate transactions in the state in the current or prior calendar year.
Pennsylvania has ruled that effective March 1, 2018, referrers, remote sellers, and marketplace facilitators that meet PA’s threshold must collect sale tax or comply with the use tax notice and reporting requirements for non-collecting sellers.
What is the PA threshold? Nexus is triggered if the seller had taxable sales in PA of $10,000 or more in the previous calendar year.
If your company transacts business in states other than your home state (state of domicile), you may become taxable in those other states due to the Wayfair decision that eliminated the physical presence test and propelled states to change their nexus rules.
If one looks at NJ and PA, one can appreciate the challenges businesses will face in determining nexus on a state-by-state basis. Some of the challenges highlighted by these two states are:
- Different effective dates;
- PA ignored the number of transactions and NJ matched S. Dakota’s 200 transactions;
- NJ looked at gross revenues of $100,000; whereas PA adopted $10,000 of taxable sales.
Tax Planning Tip #1: If you conduct business in multiple states, consult with an experienced tax professional to understand your tax exposure due to the new nexus standards states are implementing.
Tax Planning Tip #2: The challenge for businesses, in addition to paying the proper amount of tax to the individual states, is to create an internal system to track the rules of each state where business is conducted OR to outsource this to a 3rd party to track.
Tax Planning Tip #3: Information is knowledge. If you are doing business in a state and are approaching the threshold of that state, do you defer transactions to the following tax year to avoid the underpayment of tax in the current year? Imagine the logistically nightmare of dealing with a customer for several months and not charging the customer sales tax, to learn late in the calendar year that you are quickly approaching the threshold for that customer’s state. Do you stop shipping to that customer and risk losing the customer? Do you begin charging sales tax for sales that had not previously been charged sales tax? If you exceed the threshold, than those prior sales where no sales tax was collected are now taxable sales. Can your business afford to absorb those previously uncollected sales taxes?
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.
