Sales Taxation in the eCommerce Era

The Supreme Court’s landmark decision in South Dakota v. Wayfair, Inc. in June 2018 transformed the landscape of sales tax collection for e-commerce businesses across the United States. The ruling allowed states to require remote sellers to collect and remit sales tax, even if they lack a physical presence in the state.

Before Wayfair, businesses were generally only required to collect sales tax in states with a physical presence, such as brick-and-mortar stores or warehouses. However, the Wayfair decision introduced the concept of economic nexus, which establishes a business’s obligation to collect sales tax based on its level of economic activity within a state.

In Wisconsin, economic nexus is triggered if a business has more than $100,000 in gross sales within the state in a calendar year (either the previous or current year). A remote seller is only required to collect and remit sales or use tax if its gross sales into Wisconsin exceed $100,000 in the previous or current calendar year. This is the “small seller exception.”

A remote seller that qualifies for the small seller exception is not required to register and collect Wisconsin sales or use tax.

The annual gross sales amount includes both taxable and nontaxable sales into Wisconsin. In addition, the annual amount includes sales into Wisconsin by the remote seller on behalf of other sellers and sales made by another seller on the remote seller’s behalf.

The Post Wayfair “Trap” – Sellers Forget about Physical Nexus:

The biggest misconception is that the Wayfair decision and the subsequent economic nexus provisions passed by many states became the law of the land, meaning people thought the economic nexus provisions were how you determined nexus moving forward. But that’s not true. The first question, still, is where do you have physical nexus?

If you have an employee in a state, if you have inventory in most states, if you have people traveling into a state to do services or to do sales solicitation, those activities still create physical nexus even if you don’t exceed the economic nexus thresholds. But people’s misconception continues to be that they thought they did not have nexus until they crossed the economic thresholds. And that’s just false.

Plus, the physical presence trap is further exacerbated by so many sellers of tangible things relying on third-party fulfillment providers. It’s not just the Amazon marketplace; it’s also the rise of sellers using fulfillment centers. These third-party fulfillment companies control seller inventory. The physical presence of that inventory in the third-party fulfillment center creates physical nexus.

The big trap is forgetting about physical presence despite Wayfair. Physical presence still matters.

More about Sales Tax…

Sales Tax Registration and Collection:

Businesses that meet the economic or physical nexus threshold in Wisconsin are required to register for a Wisconsin seller’s permit. Registration can be done online through the Wisconsin Department of Revenue’s website. Once registered, businesses must begin collecting sales tax on taxable sales made to Wisconsin customers.

• Register directly with Wisconsin – To register only for Wisconsin, use Wisconsin’s online registration system. See the department’s Common Questions for Sales and Use Tax Permits for additional information.

• Register through Streamlined Sales Tax – To register for multiple states, including Wisconsin, submit a single application through the Streamlined Sales Tax Registration System. There is no fee to complete and submit this online registration. Upon completion of the registration, the remote seller will be registered to collect and remit sales and use tax in all 24 Streamlined member states. Additional information is provided on the Streamlined Sales Tax Registration webpage and in the ​Streamlined Sales Tax Registration System FAQs.
  
  A remote seller may use a Certified Service Provider (CSP) to perform its sales or use tax responsibilities when registering through the Streamlined Sales Tax Registration System. CSPs are certified under the Streamlined Sales and Use Tax Agreement to perform all the remote seller’s sales and use tax functions, other than the remote seller’s obligation to remit tax on its own purchases. A CSP is designed to allow a business to outsource most of its sales tax administration responsibilities. If a remote seller registers through the Streamlined Sales Tax Registration System and contracts with a CSP to perform its sales and use tax functions (i.e., CSP Services), the CSP will file monthly sales and use tax returns on behalf of the remote seller. See the CSP FAQs for more information.

Marketplace Facilitators:

In addition to the economic nexus provisions, Wisconsin also imposes sales tax responsibilities on marketplace provider. A marketplace provider is an online platform that facilitates sales between third-party sellers and customers. Under Wisconsin law, marketplace provider are responsible for collecting and remitting sales tax on behalf of their third-party sellers if they meet the economic nexus threshold.

Think Amazon, stubhub, Etsy, etc.

Effective January 1, 2020, 2019 Wis. Act 10 clarified that marketplace providers are required to collect and remit sales or use tax for all taxable sales the marketplace provider facilitates on behalf of a marketplace seller, unless the marketplace provider qualifies for the small seller exception.

The marketplace provider is required to collect and remit tax on facilitated sales, regardless of whether the marketplace seller is a remote seller that qualifies for the small seller exception.

Under prior law, the marketplace provider was actually liable for tax on Wisconsin sales made on behalf of third-party sellers because the marketplace provider was considered a retailer, as provided in sec. 77.51(13)(c), Wis. Stats.

Compliance and Reporting:

Businesses that collect sales tax in Wisconsin must file regular sales tax returns with the Wisconsin Department of Revenue. Returns are filed monthly, quarterly, or annually, depending on the volume of sales. It is essential for businesses to accurately report and remit the collected sales tax within the specified filing deadlines to avoid penalties and interest.

Impact on Purchasers:

Purchasers are responsible for reporting use tax on the purchase price of a taxable item if the remote seller does not charge tax. A remote seller that qualifies for the small seller exception is not required to register and collect Wisconsin sales or use tax on its taxable sales. However, the purchaser is liable for use tax on its purchase of taxable items.

Conclusion:

The Wayfair decision has reshaped the sales tax landscape in Wisconsin, requiring businesses to navigate new obligations and responsibilities. Understanding the economic nexus threshold, registering for a seller’s permit, collecting sales tax, and filing accurate returns are essential for compliance. Businesses must stay current with any changes in Wisconsin’s sales tax laws and regulations to avoid potential penalties and ensure a smooth and lawful operation.

Most importantly, do not forget that physical nexus is still law; economic nexus is another way a Seller may have nexus in a particular state.

If you have any questions, please contact Attorney Van U. Donkersgoed at vud@dewittllp.com or (262) 754-2861.