Associations and other nonprofit groups are closely tracking activity in state legislatures across the country to impose a state sales tax for online purchases in the wake of the Supreme Court of the United States’ Wayfair decision last year.
SCOTUS' groundbreaking ruling in South Dakota v. Wayfair throws out the previous “physical presence” threshold for when sellers are subject to state taxes, instead finding that South Dakota’s law imposing sales tax on remote vendors that meet thresholds of $100,000 in annual in-state sales or 200 transactions “did not impose an undue burden on interstate commerce.”
This ruling led many states to adopt or propose remote sales tax laws that mirror the one in South Dakota, but some states have elected to vary their approach. According to the National Council of Nonprofits, by the end of 2018, 35 states adopted or proposed laws to tax out-of-state sellers, and at least 13 more states got into the fray in 2019.
Given the emboldened approach some states have taken, associations are having to conduct state-by-state analysis to determine what types of revenue-generating activity might be taxable. Some states exempt nonprofit groups from paying sales tax on certain transactions but these exemptions vary by state. Some associations are likely to be shielded by the threshold set by many states (such as South Dakota’s $100,000 in sales or 200 transactions threshold); however, the question of what types of sales are taxable in each state further complicates compliance. Associations also need to be wary that some states could apply new remote seller sales tax laws retroactively, though that is not an allowable provision in South Dakota’s law.
“The topic of sales tax nexus and seller collection requirements will continue to be a very active and important area over the coming months and years,” said Walter Calvert, a nonprofit tax attorney with Venable. “A nonprofit organization that is an active online seller needs to proactively monitor these developments as well as watching the organization’s selling activity to determine if and when the organization crosses over a particular state’s economic nexus threshold.”
For more information on this issue, contact the American Society of Association Executives' (ASAE) public policy team at publicpolicy@asaecenter.org.
This article was provided to OSAE by the Power of A and ASAE's Inroads.