If the bill is signed into law by the governor, New Jersey’s legislature will become the first to have passed a modified law (NJ A4261) following the Supreme Court’s decision in South Dakota v. Wayfair. The New Jersey law is drafted to follow the provisions of South Dakota’s statute which were commented upon favorably in the majority opinion, suggesting such a statute would likely not face a successful challenge on other Commerce Clause grounds.
New Jersey has been a full member of the Streamlined Sales Tax Agreement since October 1, 2005, so bringing the economic nexus provisions into line with South Dakota’s would serve to bring the state under the implied “safe harbor” found in the majority opinion’s discussion of South Dakota’s protections against running afoul of the Commerce Clause.
The bill passed the state Senate on July 1 after having passed the state Assembly the day before. The bill also contains marketplace provisions (found in Act Section 2) and would go into effect on October 1, 2018 (Act Section 4).
Like South Dakota, a remote seller is required to collect and remit New Jersey sales taxes if it meets either of the following criteria found in Act Section 1.a:
(1) The seller’s gross revenue from delivery of tangible personal property, a specified digital product, or services into the State in the calendar year in which a sale of tangible personal property occurred or the prior calendar year exceeds $100,000; or
(2) The seller sold tangible personal property, a specified digital product, or services for delivery into the State in 200 or more separate transactions during the calendar year in which a sale of tangible personal property occurred or the prior calendar year.
The law provides that a seller who collects and remits such tax is protected against a suit instituted by a buyer who claims excess tax was collected. This protection applies even if the seller voluntarily collects and remits the tax. (Act Section 1.c).
The bill was amended after initial introduction on the day of the Wayfair decision, to add a requirement for marketplace sellers to collect the tax on behalf of marketplace sellers that are not themselves collecting the tax. (Article 2) The bill provides:
…a marketplace facilitator shall collect and pay to the director the tax imposed under P.L.1966, c.30 (C.54:32B-1 et seq.) on any retail sale made to a purchaser in this State; provided, however, a marketplace facilitator shall not be required to collect and pay the tax imposed under P.L.1966, c.30 (C.54:32B-1 et seq.) on a retail sale if the marketplace seller for whom the retail sale is facilitated holds a certificate of registration pursuant to section 15 of P.L.1966, c.30 (C.54:32B-15) and provides a copy of the certificate of registration to the marketplace facilitator prior to the retail sale. Nothing in this subsection shall be construed to interfere with the ability of a marketplace facilitator and a marketplace seller to enter into an agreement with each other regarding the collection of the tax imposed under P.L.1966, c.30 (C.54:32B-1 et seq.). (Act Section 2.b)
The terms “marketplace facilitator” and “marketplace seller” are defined as follows:
“Marketplace facilitator” means a person who provides a forum that lists, advertises, stores, or processes orders for tangible personal property subject to tax under the “Sales and Use Tax Act,” P.L.1966, c.30 (C.54:32B-1 et seq.), and directly or indirectly through an agreement or arrangement with a third party, collects receipts from a purchaser and remits payment to a marketplace seller, regardless of whether the person receives compensation or other consideration for such services.
“Marketplace seller” means a seller that makes retail sales through a forum operated by a marketplace facilitator.
Such marketplace facilitators would certainly appear to include Amazon and eBay, along with any other similar entities.
Some commentators have suggested that, since South Dakota is a relatively small state, there may be an argument that the economic nexus numbers should be higher for a larger state such as New Jersey. In theory, due to the relative size of the states, smaller businesses might end up having to comply with New Jersey’s rule than South Dakota’s, since they would likely have more customers in New Jersey. However, nothing in the majority opinion clearly signaled that this argument would necessarily be able to prevail—and certainly it would be expected that New Jersey will take the position that they do not need to have a higher economic nexus standard than South Dakota.
While, assuming the governor signs the bill into law, this will be the first legislation in reaction to the Court’s decision in Wayfair, it almost certainly won’t be the last. As well, some states had adopted statutes patterned on South Dakota’s statute prior to the ruling hoping for a South Dakota victory.