The Association participated in a meeting this morning at the North Carolina Department of Revenue to discuss a new directive the Department issued earlier this afternoon regarding economic nexus.
Effective November 1, 2018, businesses making annual sales in excess of $100,000 or 200 transactions will be required to collect sales tax regardless of whether they have a physical presence.
The Department explained its position that NCGS Section 105-165-8(b), an existing statute, provides the state the authority to impose economic nexus when considered in conjunction with the Supreme Court’s decision in South Dakota v Wayfair. The statute provides:
(b) Remote Sales – A retailer who makes a remote sale is engaged in business in this State and is subject to the tax levied under this Article if at least one of the following conditions is met:
. . .
(5) The retailer, by purposefully or systematically exploiting the market provided by this State by any media-assisted, media-facilitated, or media-solicited means, including direct mail advertising, distribution of catalogs, computer-assisted shopping, television, radio or other electronic media, telephone solicitation, magazine or newspaper advertisements, or other media, creates nexus with this State. A nonresident retailer who purchases advertising to be delivered by television, by radio, in print, on the Internet, or by any other medium is not considered to be engaged in business in this State based solely on the purchase of the advertising.
The statute was unenforceable prior to Wayfair, because of the physical presence requirement created by previous court decisions (Quill and National Bellas Hess). Because Wayfair overturned the physical presence requirement, the Department will be enforcing the existing statute.
The annual $100,000 sales and 200 transaction thresholds will be considered on a calendar year. If a taxpayer exceeds these thresholds during the previous or current year, then sales tax must be collected. If the threshold is exceeded for the first time during a current year, the taxpayer will have 60 days to begin collecting tax from the time the threshold is exceeded.
The Department’s official position can be found within Directive SD 18-6. A number of questions were asked during the meeting—many of them were deferred and some may be addressed in an FAQ resource the Department plans on issuing by the end of this month.
Thank you to Taxation Committee member Jack Schmoll, CPA, for representing NCACPA at this meeting.