Georgia approves online sales tax, non-collecting seller use tax reporting

Update 5.3.2019: As of January 1, 2020, the non-collecting seller use tax reporting requirement is eliminated and the economic nexus sales threshold drops from $250,000 to $100,000.

Update, 12.26.2018: See Georgia Department of Revenue Policy Bulletin SUT-2018-07 for additional details.

Update, 5.10.2018: Governor Deal signed HB 61 on May 3, 2018. It takes effect January 1, 2019.

The Georgia Legislature has passed an economic nexus measure that would require certain out-of-state sellers to either collect and remit Georgia sales and use tax, or comply with use tax notice and reporting requirements. It now goes to Governor Nathan Deal for approval.

What does this mean for internet sellers?

Economic nexus

Under HB 61, an out-of-state seller is required to register with the state and collect and remit Georgia sales and use tax if in the previous or current calendar year it either:

• Has gross revenue exceeding $250,000 from retail sales of tangible personal property delivered electronically or physically to a location in Georgia for consumption, use, or storage in the state; or
• Conducts 200 or more separate retail sales of tangible personal property delivered electronically or physically to a location in Georgia for consumption, use, or storage in the state.

Georgia is one of a growing number of states to consider or adopt a measure that bases a tax collection obligation on economic activity (economic nexus). However, enforcement of economic nexus laws is complicated by the fact that states are only permitted to impose a sales tax collection obligation on businesses that have a physical presence in the state (physical presence nexus).

The Supreme Court of the United States upheld the physical presence limitation in a 1992 ruling (Quill Corp. v. North Dakota). Quill is now being challenged by South Dakota’s economic nexus law, and it will soon be reviewed by the Supreme Court in South Dakota v. Wayfair, Inc. Many tax experts expect the court to loosen the physical presence limitation to some degree, although no one actually knows how the court will rule.

In the meantime, Georgia cannot legally compel remote vendors to comply with HB 61. Thus, the use tax notice and reporting requirements for non-collecting sellers.

Non-collecting seller use tax reporting

Remote sellers that meet the sales threshold but don’t collect and remit the tax must:

• Notify each potential purchaser that “sales or use tax may be due to the State of Georgia on this purchase”
• Send to each purchaser whose retail sales totaled $500 or more during the prior calendar year (on or before January 31 of each year) a sales and use tax statement that includes:
          o   The total amount paid by the purchaser during the previous calendar year
          o   The dates of each purchase, amounts of each purchase, and category of each purchase, if known
          o   The tax status (exempt or taxable) of each purchase, if known
• File a copy of each of the purchaser’s sales and use tax statements (as explained above) with the Georgia Department of Revenue (on or before January 31 of each year)

These onerous requirements are designed to encourage non-collecting sellers to collect and remit tax, which would, arguably, be simpler.

While economic nexus provisions are being challenged everywhere they exist, the Supreme Court allowed use tax notice and reporting requirements for non-collecting sellers to stand. Retailers that fail to comply with them in Georgia, therefore, would be penalized as follows:

• $5 per failure to notify consumers of their potential use tax obligation prior to the sale
• $10 per failure to send a required statement to the consumer
• $10 per failure to send a required statement to the Department of Revenue

These could quickly add up.

Why now?

Why is Georgia opting to do this now?

If the Supreme Court sides with South Dakota in South Dakota v. Wayfair, Inc., states that have already adopted an economic nexus measure would likely be well positioned to enforce those laws. According to Georgia House Ways and Means Chairman Jay Powell, “The state needs to have its law in place to begin collecting money if the Supreme Court rules in favor of internet sales taxes.”

House Bill 61 would take effect January 1, 2019.

Learn more about South Dakota v. Wayfair, Inc., and its potential impact on your business here.