The Pennsylvania Department of Revenue had a nice surprise in tax collections this year. Its projection of sales tax revenue from online retail sales in the current fiscal year was $50.5 million. As of March 31, however, three-quarters through the fiscal year, revenue already surpassed $151 million.
The amount of sales tax revenue collected from online sales can be expected to grow even further due to the Department’s interpretation of its expanded authority to collect tax on such sales under current law. That interpretation stems from the U.S. Supreme Court’s year-old decision in South Dakota v. Wayfair, Inc., which overturned a prior precedent holding that a physical presence in the state was necessary to require a seller to collect sales tax.
In January the Department of Revenue, in its Sales and Use Tax Bulletin 2019-01, stated that the Wayfair decision, in conjunction with Pennsylvania’s Tax Reform Code, created an economic nexus for remote sellers of products in the Commonwealth. The Tax Reform Code already authorizes the collection and remittance of sales tax as permitted under the U.S. Constitution. Bulletin 2019-01 is effective July 1, 2019.
Under the Bulletin, Pennsylvania’s economic nexus applies to those marketplace sellers who in the previous calendar year made more than $100,000 of gross sales into the Commonwealth, which is the same threshold found reasonable in Wayfair. Such entities will now have to register for a license and collect, report, and remit sales tax on sales into the Commonwealth. Additionally, if a marketplace facilitator (a website that sells the products of others) has economic nexus in Pennsylvania, it will now be required to collect sales tax on all sales into the Commonwealth, even if the sale is on behalf of a marketplace seller that does not individually have any nexus.
Thus, a marketplace facilitator with no physical presence in Pennsylvania should determine whether it has exceeded the $100,000 threshold by adding its facilitated sales and direct sales into the Commonwealth. Furthermore, a marketplace seller with no physical presence in Pennsylvania should determine whether it has exceeded the $100,000 by adding its direct sales and sales made through a marketplace facilitator that does not collect sales tax on its behalf.
The economic nexus rules do not replace or provide an alternative to the provisions of the 2017 Act 43 “Marketplace Sales Act,” which required marketplace facilitators and remote sellers with at least $10,000 in taxable sales in the state to collect and remit sales tax or comply with non-collecting seller use tax notice and reporting requirements. These latter requirements essentially placed the burden on consumers to pay the tax to the state.
The provisions of Act 43 remain valid law applicable to those vendors who have neither a physical presence nor an economic nexus in Pennsylvania. However, marketplace facilitators and direct sellers who now have an economic nexus in Pennsylvania will no longer have the Act 43 election available to them. They will have to collect, report, and remit the sales tax on all sales into the Commonwealth.
On January 30, 2019, the Department of Revenue updated the Bulletin to provide that the threshold is to be measured by calendar year sales (not the previous 12 months, as previously stated). Required collection of sales tax by these remote sellers begins July 1. After the first year, collections will begin in the second quarter to allow taxpayers adequate time to compile their calendar year sales. Thus, the collection period is July 1, 2019 through March 31, 2020, using the 2018 calendar year to determine nexus, and April 1, 2020 through March 31, 2021, using calendar year 2019 to determine nexus.
The Department of Revenue has certified sales tax compliance service providers (CSPs) to assist businesses with the registration, collection, reporting, and remittance of sales tax. Businesses that use CSPs are relieved of certain liabilities if audited. That information is found on the Department’s website at https://www.revenue.pa.gov/GeneralTaxInformation/Tax%20Types%20and%20Information/SUT/OnlineRetailers/Pages/Certified-Service-Providers.aspx