How companies must address sales taxes changed forever after the Supreme Court ruling in South Dakota v. Wayfair, et al. In that 2018 decision, the Court interpreted the law to rule that even companies without a physical presence in a state (i.e., a brick-and-mortar building, warehouse, trade show, inventory, employees and/or representatives) could still be required to register and collect tax in that state if the company met certain economic thresholds, measured in quantity of transactions, dollar volume of transactions, or sometimes both.
Using the same logic that led many states to pass and implement economic nexus laws for sales and use taxes, a multitude of states passed similar laws for income/franchise tax purposes. However, instead of states taking similar approaches to one another as they had with sales and use taxes, setting thresholds at a particular quantity of sales and/or a certain level of revenue earned in the state, states that have implemented economic nexus thresholds for income tax have taken a wider variety of approaches—
- Some states use the same economic nexus threshold from their sales tax economic nexus laws—for example, Hawaii and Texas.
- Pennsylvania uses a $500K threshold that differs from their sales tax threshold.
- Wisconsin’s legislators declared that a mere fifteen days of in-state activity requires a taxpayer to file an income tax return.
Before your company begins filing tax returns in states with income tax economic nexus laws, work with your tax professional to learn how Public Law 86-272 may affect you. P.L. 86-272 is a valid federal law that protects certain activities related to sales of tangible personal property from creating nexus. Bottom line, if your company’s revenue is generated by sales of tangible personal property and your activity in any states with economic nexus laws for income/franchise tax are de minimis, you will not be subject to any income tax filing obligation.
So your growing business can concentrate on product, market, people, and other direct drivers of success, engage VPTax to help. Outsourced tax services monitor Wayfair’s demands on your business, and your Tax Director can assist by reviewing sales figures and providing advice on the necessity and/or desirability of filing income/franchise tax returns in new states. We’ll help you get it right, with as little burden on you as possible. Reach out to learn more—we’d love to to talk.