Your holiday shopping sales tax wrap-up

The mad-dash 2019 holiday shopping season is here, when retailers bag roughly 30% of their sales for the year. Total sales in November and December could exceed $727.9 billion, or perhaps even $1 trillion. And more of them will be subject to sales tax than ever before.

• More than 165 million people are predicted to shop Thanksgiving Day through Cyber Monday, spending about $29 billion online.
• Total online sales during the holidays are expected to be between $162.6 billion to $166.9 billion, roughly $20 billion more than in 2018.
• An estimated 39.6 million people may shop Thanksgiving Day.
• 114.6 million people are expected to shop on Black Friday. Sales could reach $7.5 billion —  a 20% increase over 2018.
• Cyber Monday sales could approach or exceed  $10 billion. The busiest period will likely be 7 p.m. to 11 p.m. PST.
• Cyber Monday sales are expected to spill into Cyber Tuesday.
• Mobile sales this holiday season will likely increase by $14 billion over 2018.
• Out-of-state sellers may have to collect and remit sales tax in up to 42 states.

In 2018, 20 states required certain remote sellers to collect and remit sales tax:

• 14 states were enforcing economic nexus prior to the start of the holiday shopping season (plus one state that didn’t tell anyone it was enforcing it)
• 4 states started enforcing it on November 1, 2018
• 1 state started enforcing it on December 1, 2018

Today, 42 states require certain remote sellers with no physical presence in the state to register with the tax department and collect and remit tax on their sales in the state. The states that don’t require remote sales tax are the five states that lack a general sales tax — Alaska (though local sales tax may apply), Delaware, Montana, New Hampshire, and Oregon — as well as Florida, Louisiana, and Missouri.

Thus, more retailers than ever before will have to deal with sales tax in more states during the holiday rush; and as the numbers above reveal, sales are expected to be strong this holiday season.

Most states require remote sellers to collect sales tax only if the seller surpasses a certain threshold of sales in the state during a set timeframe (the economic nexus threshold). For example, Virginia’s economic nexus threshold is $100,000 in retail sales of goods or taxable services or 200 transactions of the same in the current or previous calendar year.

While this is undoubtedly a relief for small retailers selling safely below the economic nexus threshold, it adds a layer of complexity to businesses whose sales into an economic nexus state walk the line. They need to constantly monitor their sales into such states.

Once they cross a state’s economic nexus threshold, retailers need to register with the state and prepare to collect and remit sales tax within a specific time. For some states, that may be the very next sale, although other states give businesses more leeway.

With approximately 30% of most sellers’ annual sales taking place in the coming weeks, the likelihood that an economic nexus threshold will be crossed in one or more states is high.

Tip: If there’s a spare minute, figure out how close you are to crossing economic nexus thresholds in all states where you make sales but aren’t registered. This will help crystalize which states need to be watched most closely, and where it may make sense to register to collect now, before the onslaught begins.

There’s another complicating factor: Most of the states that have economic nexus now require marketplace facilitators to collect and remit sales tax on behalf of their third-party sellers.

Retailers that only sell through a marketplace that collects on their behalf aren’t required to register in some states, such as Alabama. However, they do have to register in other states, such as California. And in some states, registration requirements for marketplace sellers aren’t yet clear.

Businesses that make direct sales in addition to marketplace sales are required to register and collect due on those sales if they have an obligation to collect sales tax (e.g., economic nexus or a physical presence). They may or may not need to report marketplace sales that are taxed by the marketplace facilitator — it depends on the state.

Tip: Because every state marketplace facilitator law is unique, circumstances that require registration in one state may not in another state. The only way to know for sure is to study state marketplace facilitator laws and registration requirements for marketplace sellers. 

The holidays are often hectic, especially for retailers. Understanding and preparing for the new remote sales tax reality can help make the 2019 holiday shopping season a success.