Majority of States With a Sales Tax Plan to Start Requiring Out of State Sellers to Collect Taxes Shortly

Reports today from various sources have noted that a majority of states that impose a sales tax have now put in place requirements for out of state sellers to collect and pay over sales taxes.  The dates for beginning enforcement have ranged from July 1 (which means sellers may already be in violation) to January 1, with a number of states looking to begin collection requirements on October 1, 2018.

The most recent three states to announce (which pushed the total to 24 states) are detailed below.

  • Indiana – Per a notice posted on the Indiana Department of Revenue’s website on July 27, 2018 (Indiana DOR Prepares to Move Forward with Out-of-State Sales Tax), the agency plans to begin collections on October 1, 2018.  The trigger is similar to South Dakota's-$100,000 in sales or 200 or more separate sales.  The only item blocking a formal announcement right now is a court case where the state and a party challenging the law had agreed to hold the matter until the Wayfair decision came down. With the decision from the Supreme Court siding with South Dakota, the Indiana Department of Revenue is now asking the court to throw out the challenge.  Indiana is an Streamline Sales and Use Tax Agreement (SSUTA) member state.
  • Kentucky – The Kentucky Department of Revenue announced on July 30, 2018 (Kentucky Sales and Use Tax Collections by Remote Retailers - U.S. Supreme Court Ruling) that the agency plan to start requiring collections from remote sellers on October 1, 2018.  Again, the triggers are the same as South Dakota ($100,000 or 200 transactions).  Kentucky is also an SSUTA member state.
  • Nebraska – The Nebraska Department of Revenue announced last Friday (Statement from the Nebraska Department of Revenue Regarding the South Dakota v. Wayfair United States Supreme Court Decision) the state will demand collection by out of state sellers beginning January 1, 2019 using South Dakota’s minimums ($100,000 or 200 transactions).  As with the other two states, Nebraska is an SSUTA state.

Presumably a significant number of the minority of states with a sales tax that haven’t yet published guidance will release such guidance soon.  Certainly, sellers with significant sales into any state in which the seller is not currently collecting sales tax needs to prepare to begin such collections soon.

Most observers believe that states that use the South Dakota triggers and are full members of the Streamlined Sales and Use Tax Agreement will have little trouble defending their taxes from a Constitutional challenge.  As a practical matter, though, the cost of attempting to challenge a state’s law in federal court would suggest that most sellers will not wish to challenge even those states that stray some from the South Dakota facts.

So far, the states have mainly refrained from stating they will go after sellers for amounts that would have been collected in months before the Wayfair decision came down, likely to reduce the risk that the Congress would be motivated to step in and enact legislation in this area.