New Jersey joins growing ranks of states to tax remote sales

Update 10.9.2018: New Jersey Governor Phil Murphy signed Assembly Bill 4496 into law on October 4, 2018, officially enacting economic nexus as described below.

Update 10.1.2018: Economic nexus in New Jersey has been postponed. It will take effect November 1, 2018. Additional details are available from the New Jersey Division of Taxation.

The United States Supreme Court decision in South Dakota v. Wayfair, Inc. has inspired numerous states to adopt new sales and use tax policies in order to increase remote sales tax collection. New Jersey is one of the latest to do so.

Prior to the June 21, 2018, Wayfair ruling, physical presence in a state was a prerequisite for taxation: A state could impose a tax collection obligation on businesses with a physical presence in the state, but not on businesses without physical presence. That’s changed now that the court deemed this physical presence rule “unsound and incorrect.”

The law that launched dozens of new laws

South Dakota v. Wayfair, Inc. was triggered by South Dakota’s economic nexus law, which imposes a tax collection obligation on businesses based on their economic activity in the state, rather than physical presence. It applies to any business that in the current or previous calendar year has more than $100,000 in gross sales into South Dakota, or 200 or more separate transactions into the state (gross sales or transactions include the sale of tangible personal property, electronically transferred products, or services).

The Supreme Court ruling was broad: It repealed the physical presence limitation and sent the case back to state courts for further proceedings not inconsistent with the ruling. This leaves much for states to interpret: There’s no bright-line test like the now debunked physical presence rule.

Yet the court did praise three aspects of the South Dakota sales tax law:

• It allows an exception for small sellers
• It’s prospective
• As a member of the Streamlined Sales and Use Tax Agreement, South Dakota has worked to reduce the complexity and costs of sales tax compliance

In the absence of other guidelines, many states are modeling new policies for remote retailers on South Dakota’s.

Economic nexus in New Jersey

As of November 1, 2018, a remote seller that makes a retail sale of tangible personal property, specified digital products, or services for delivery to a location in New Jersey must register, collect, and remit New Jersey sales tax if in the current or prior calendar year the remote seller either:

• Has gross revenue of more than $100,000 from delivery of tangible personal property, specified digital products, or services into New Jersey; or
• Sold tangible personal property, specified digital products, or services into New Jersey in 200 or more separate transactions.

According to the New Jersey Division of Taxation, the new policy will be enforced on a prospective basis for remote sellers with no physical presence in New Jersey. The Division will provide additional information for remote sellers “shortly.” In the meantime, it invites remote sellers to read its Sales Tax Guide.

New Jersey is in good company. In recent weeks, Nebraska, North Carolina, Washington, Utah, and other states have announced new tax policies inspired by the Wayfair decision. California and Texas —the two most populous states in the Union — are expected to do the same shortly. 

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