Several states are considering, and some have adopted, legislation that imposes sales tax on out-of-state sellers. Associations could feel the impact and are working to sort out a patchwork of varying requirements.
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’s decision in South Dakota v. Wayfair last year.
The groundbreaking Wayfair ruling throws out the previous “physical presence” requirement for when sellers are subject to state taxes, instead finding that South Dakota’s law imposing sales tax on remote vendors that meet certain thresholds “did not impose an undue burden on interstate commerce.” The law applies to out-of-state vendors with $100,000 in annual in-state sales or 200 transactions.
The ruling has 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 had adopted or proposed laws to tax out-of-state sellers, and at least 13 more have entered the fray this year.
Given the trend, many associations are conducting state-by-state analyses 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, but the question of what types of sales are taxable in each state complicates compliance, according to legal experts.
Associations also need to be wary that some states could apply new remote-seller sales tax laws retroactively, though that is not the case in South Dakota.
“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.”