As the holiday shopping season gears up, businesses should be aware of the issue of sales tax “nexus.” Though this topic has been discussed for years, it became more relevant as online shopping gained even more in popularity due to COVID-19. Nexus has become a top priority for businesses and governments across the United States since the tax impact of eccomerce was clarified by the U.S. Supreme Court’s decision in the case of South Dakota v. Wayfair in 2018. In this case, the Supreme Court ruled that physical presence in a state is not required for economic nexus to be established.
Under Wayfair, states can mandate that businesses without physical presence must collect and remit sales taxes on transactions within the state if they have more than $100,000 of in-state sales or 200 transactions. Most states have realized that this is a revenue-generating opportunity, and have enacted their own guidelines to give businesses insight about whether or not they need to collect sales tax in that state.
Pennsylvania is one of the states rolling out new laws regarding nexus within the Commonwealth. The State will follow the general decision handed down by the Supreme Court, but it will raise the required amount of sales to $500,000. Pennsylvania has also added more ways that nexus may apply to a business operating in Pennsylvania as detailed in Section 56.1 Maintaining a Place of Business within this Commonwealth, and noted below:
- Having or maintaining either directly or through a subsidiary, an office, distribution center, sales house, warehouse, service enterprise, or other place of business.
- Having or maintaining an agent of general or restrictive authority.
- Maintaining a stock of goods.
- Regularly soliciting orders via a solicitor, salesman, agent or representative.
- Regularly delivering property in this Commonwealth or soliciting business within this Commonwealth.
- Regularly engaging in leasing or servicing of property activities located in this Commonwealth.
These rules apply to a corporation, joint-stock association, business trust, limited liability company, or any other entity classified as a corporation for tax purposes such that the entire business is conducted within Pennsylvania. Further information about the Pennsylvania standards can be found here: Online Retailers (pa.gov).
Due to the COVID-19 pandemic, Pennsylvania also recently added a telework law to address employees working from their homes in the Commonwealth. This law will apply nexus if a business has one or more employees working remotely in Pennsylvania after the end date of June 30, 2021. Even if the employing business does not have a physical presence in the State, it may have nexus for 2021 based on the activities of its employees. It is important to note that some localities and counties also have nexus rules that could require their sales tax percentages to be added to the 6% Pennsylvania state sales tax.
As online business transactions continue to increase, so will the complications related to the associated tax compliance. If you need assistance determining potential nexus issues for your business, please reach out to your GYF Tax Executive at 412-338-9300.