Effective July 1, 2021, Florida and Kansas have imposed a bright-line sales tax economic nexus test for both remote sellers and marketplace facilitators/providers. Missouri, previously the last state without an economic nexus test for imposing sales tax collection responsibilities on remote sellers and marketplace facilitators, has enacted one, effective January 1, 2023, reflecting significant regulatory updates in the state's tax policies.
Sellers of goods and services to customers in Florida, Kansas, and Missouri need to evaluate each state’s economic nexus threshold and determine if they are required to collect and remit sales tax in these states.
After the Wayfair case was decided in June 2018, most states quickly passed laws to adopt economic nexus provisions, which make sellers outside the state responsible for collecting and remitting sales tax on sales to customers in the state, even if the seller has no physical presence in the state.
Florida has been a notable exception — until now. SB 50 adopts an economic nexus test of $100,000 of previous year annual taxable sales (with a measurement period starting July 1, 2020) of tangible personal property into Florida by remote sellers and marketplace providers. If a county imposes a surtax, this tax must also be collected and remitted by remote sellers and marketplace providers. The effective date of this new tax collection law is July 1, 2021.
Florida defines “marketplace provider” as a company performing the following activities: facilitating a retail sale by listing or advertising the seller’s tangible personal property and collecting payment from the customer regardless of whether the marketplace provider receives compensation or other consideration for its services. Certain types of companies are excluded from being a marketplace provider, including travel agency services, delivery network companies picking up goods from local restaurants and stores and delivering them to customers, and companies that solely process payment transactions.
A marketplace provider must include in its agreement with marketplace sellers a certification notice stating it will collect and remit sales tax on the seller’s transactions. Starting April 1, 2022, Florida will allow marketplace sellers with annual sales of more than $1 billion to elect to collect and remit the tax themselves.
Kansas was an early adopter of economic nexus but did not provide any threshold test, so essentially all sales to Kansas customers by remote sellers were deemed to be subject to sales tax. In September 2019 the Kansas Attorney General warned that the state’s adoption of economic nexus for sales tax purposes was “of no force or legal effect” because it was inconsistent with the Wayfair decision. The Kansas legislature then passed its own SB 50 to adopt economic nexus for remote sellers and marketplace facilitators, effective July 1, 2021.
The measure is $100,000 of cumulative gross receipts from sales to customers in Kansas in the current or previous calendar year. Retailers who meet this standard are not required to collect and remit tax for sales that occurred before July 1, 2021.
Interestingly, in adopting a marketplace facilitator law, Kansas will allow facilitators and sellers to agree that a seller with over $1 billion of total sales may collect and remit the sales tax itself even if utilizing a facilitator’s services.
Missouri recently enacted SB 153, which includes an economic nexus test for use tax with a $100,000 cumulative gross receipts threshold. The bill also includes a marketplace facilitator provision that requires marketplace facilitators who meet the economic nexus threshold to collect and remit use tax. Both provisions are effective January 1, 2023.
Missouri’s enactment of this law makes it the final state to adopt an economic nexus test for use tax and a marketplace facilitator collection and remittance requirement. Now, three years after the U.S. Supreme Court decided the Wayfair case, every state in the U.S. that imposes a sales and use tax has some type of economic nexus test for use tax and a marketplace facilitator provision on its books.
InsightsSellers of goods and services to customers in Florida, Kansas, and Missouri will need to quickly and carefully evaluate each state’s economic nexus threshold and measure to determine if they are required to register to collect and remit sales tax in these states. In Florida, where the measure is “taxable sales” of tangible goods, both product and customer exemptions need to be evaluated to determine if taxable sales exceed the $100,000 threshold. For example, sales of professional services and sales of goods to the U.S. government will not count toward the $100,000 threshold since they are not considered “taxable sales” under Florida law.
Note that sales tax determination software will not automatically start collecting the tax. You will need to make this election in the software to ensure timely compliance with these new state laws.
Sales tax compliance is more complex than ever since all states imposing a sales tax have adopted economic nexus and marketplace facilitator provisions, and each state has its own definitions and criteria. You need to perform a current and thorough nexus study that takes into account not only these economic nexus thresholds, but also considers where your employees may have moved during the pandemic, which will likely create physical nexus for your company in the state.
Additionally, the taxability of goods and services vary by state and can change as a result of the passage of new state laws, the issuance of court decisions interpreting those laws, and the adoption of new state policies. So it is also important to perform a current review of the taxability of the goods and services sold by your company.
If you are using a sales tax software tax “engine” or platform to apply sales tax to customer invoices, you need to carefully evaluate if they meet each state’s criteria for collecting and remitting sales tax on behalf of the seller. If registration is required for sales tax purposes, you may also have a responsibility to register for business activity taxes (state income, franchise, and gross receipts taxes).
For questions or assistance with regulatory compliance, sales and use tax nexus reviews and filing, contact our experts.
