The Expanded Reach of States for Sales & Use Tax Purposes – More Than Just e-Commerce Retailers are Impacted
All states but one that impose a sales and use tax now have laws requiring out-of-state companies to collect tax if they have a significant economic presence in a state. The Governor of Missouri, the last remaining state, is expected to sign a similar law this month. The change stems from a 2018 United States Supreme Court case, the impact of which is far broader than many realize.
Collection obligations are not limited to retailers of tangible personal property—many service companies, and in particular SaaS and software companies, are at risk.
Thresholds vary by state, but more than $100,000 in sales or 200 transactions (invoices) within a 12 month period is generally sufficient to create a sales tax collection obligation. Wholesale sales generally count toward these thresholds.
States are increasingly adopting economic thresholds for income tax purposes, applicable to both entity-level taxes and personal income taxes for owners of pass-through entities.