I. Indiana Will Enforce Economic Nexus Requirements after Wayfair
On June 21, 2018, the Supreme Court of the United States issued a landmark opinion impacting state sales and use tax regimes across the country in South Dakota v. Wayfair et. al., 138 S.Ct. 2080 (2018). The decision allows for states to constitutionally impose sales and use tax registration and collection requirements on remote retailers, even online retailers. Under prior law, states could not impose these requirements on a seller unless it had “physical presence” in the state. By overruling the physical presence requirement, the Supreme Court has effectively allowed for states to impose the collection and remission obligations on outof-state retailers based on their economic nexus with, rather than physical presence in, the state.
The Court in Wayfair upheld the South Dakota economic nexus law at issue. This law required out-of-state retailers with no physical presence in the state to collect and remit sales tax if: the seller delivered more than $100,000 of goods or services into South Dakota or engaged in 200 or more separate transactions for the delivery of goods or services. The Court also looked favorably on the fact that South Dakota was a member of the Streamlined Sales and Use Tax Agreement (“SSUTA”).
Indiana had previously passed economic nexus legislation essentially identical to that of South Dakota’s, which was effective as of July 1, 2017. Pursuant to Ind. Code § 6-2.5-2-1, Indiana requires remote retailers to collect sales and use tax if, in the previous or current calendar year, their gross receipts from Indiana sales exceeded $100,000 or they had 200 or more separate in-state sales transactions. Prior to the Court’s decision in Wayfair, the American Catalog Mailers Association and Netchoice challenged Indiana’s law as unconstitutional, but the case was dismissed on August 27, 2018 after the retailers settled with the Department. See American Catalog Mailers Assoc. et al. v. Krupp, Cause No. 49D01-1706-PL-025964. The Indiana Department of Revenue has stated that it will begin enforcing the economic nexus registration and collection requirements beginning on October 1, 2018.
Thus, retailers, especially online retailers, meeting these sales thresholds in Indiana are required to register and collect Indiana sales and use tax. Indiana is also a full member of the SSUTA, which allows remote sellers to register through the central registration system in all twenty-four SSUTA member states in one process. If the taxpayer needs to comply only with Indiana, it can register at www.inbiz.com. Taxpayers can also sign up for email updates from the Indiana Department of Revenue regarding new administrative policy.
The Court’s Wayfair decision will have far-reaching implications, and taxpayers should take the time to evaluate how their businesses may be affected. Taxpayers with concerns about Indiana’s October 1, 2018 compliance date should contact their tax advisors, especially considering the often-complex nature of registration requirements, availability of collection solutions, availability of potential defenses and the need to become familiar with many states’ tax laws quickly and simultaneously.