States requiring e-commerce sales tax reaches 41 on Oct. 1

Register now

Sales tax revenue growth among the states has been strong and stable this year as mandatory collection by e-commerce retailers becomes nearly universal with the four latest states requiring it starting Oct.1.

Arizona, Kansas, Tennessee and Texas will bring the total to 41 out of the 45 states that collect statewide sales taxes as of Tuesday.

Oklahoma will be the 42nd on Nov. 1.

Louisiana’s legislature has set a July 1, 2020 deadline for the state’s Sales and Use Tax Commission for Remote Sellers to enforce sales tax collection.

Only Florida and Louisiana remain among the sales tax states that have not enacted laws to require remote collection to reap the benefit of the June 2018 Supreme Court ruling in Wayfair v. South Dakota. The ruling has been a boon for state governments as they try to strike a balance funding their ongoing operational costs with financing infrastructure projects, oftentimes through bond issuances.

A new report on state tax revenues published Tuesday by the Urban Institute found sales tax revenue has experienced uninterrupted growth since the first quarter of 2010.

“If you look at states like Washington and Pennsylvania because they have been tracking it, they see the positive impact of Wayfair on their sales tax collection,” said the report’s author, Lucy Dadayan, a senior research associate at the Urban Institute.

According to that report, “Year-over-year growth in state sales tax collections in the second quarter of 2019 was solid in most states and above 5% in 23 states. The recent strength in sales tax collections is largely because of the Wayfair ruling and states’ responses to it.”

Florida, which hasn’t yet set deadline for remote sales tax collection, saw its sales tax revenue increase only 3.3% in the first quarter of 2019 while nationwide sales tax revenues rose 5.6%.

“For sure, not being able to collect sales tax from online sales tax is hurting” them, Dadayan said.

The Wayfair ruling has enabled states to create mechanisms to enforce collection of these taxes as the growth of e-commerce has outpaced the growth of overall retail sales by three-to-one.

E-commerce retail sales grew to 10.7% of all retail sales in the second quarter of this year, according to the U.S. Commerce Department.

“Most have modeled their laws after South Dakota’s economic nexus laws, but it’s a state-by-state basis thing in how they do this,” said Savannah Gilmore, a policy associate in the Fiscal Affairs Program at the National Conference of State Legislatures.

“I think it has evolved as a discussion of tax code modernization,” Gilmore said.

Many states have enacted laws nearly identical to South Dakota’s which set a threshold of $100,000 in annual sales and 200 transactions by an out-of-state seller to require sales tax collection.

But some states have set higher thresholds, including Tennessee and Texas, which are setting it at $500,000.

Arizona’s new requirement will be $100,00 for marketplace facilitators and $200,000 for remote sellers, with the threshold for remote seller reduced to $100,000 after a two-step phase in over three years.

Oklahoma currently gives remote sellers the option to notify their customers that use tax may be due, and report sales information to the Oklahoma Tax Commission. Starting Nov. 1 remote sellers with annual sales over $100,000 in Oklahoma will be required to collect sales taxes while those with sales under that threshold still will be required to notify purchasers on their retail Internet website or retail catalog and customer invoices, that use tax is imposed and must be paid by the purchaser, unless otherwise exempt.

Also, remote sellers must send an annual statement to their Oklahoma customers by February 1st notifying them of the amount of their total purchases made during the previous calendar year.

Five states -- Alaska, Delaware, New Hampshire, Oregon and Montana -- do not levy a statewide sales tax although some cities in Alaska do collect them.

For reprint and licensing requests for this article, click here.
E-Commerce Sales tax Online sales tax NCSL Urban Institute Washington DC