remote sales tax

Wyoming considers economic nexus policy to capture more online sales tax revenue.

A bill making its way through the Wyoming Legislature requires out-of-state sellers that do not have a physical presence in Wyoming to collect and remit Wyoming sales and use tax, “as if the seller had a physical presence in this state.”

Modeled after South Dakota’s economic nexus policy, House Bill 19 does not argue that remote businesses should collect tax because of their ties to in-state affiliates (affiliate nexus) or referrals from in-state websites (click-through nexus). Instead, it maintains that remote businesses have nexus with Wyoming because of their economic ties to the state (economic nexus). (Read more about economic and affiliate nexus.)

Economic nexus

Under the measure, an obligation to collect and remit Wyoming sales and use tax is created “once the seller meets either of the following requirements for the current calendar year or the immediately preceding calendar year [emphasis mine]:

  1. The seller’s gross revenue from the sale of tangible personal property, admissions or services delivered into this state exceeds one hundred thousand dollars ($100,000); or
  2. The seller sold tangible personal property, admissions or services delivered into this state in two hundred (200) or more separate transactions.”

Voluntary compliance sought

The authors of the bill anticipate that not all businesses will comply with the policy, and they even include a section on what to do “upon the filing of an action for declaratory judgment.” HB 19’s Fiscal Note states: “It is anticipated that most vendors will fight licensure in the court system,” and it concludes that it’s impossible for the state to predict how much actual sales tax revenue the measure’s enactment could generate.

A challenge to Quill

If remote retailers are unlikely to comply with the proposed economic nexus policy, why go to the trouble of creating it?

Like several other states, including South Dakota, Wyoming hopes to challenge Quill Corp. v. North Dakota, the 1992 case in which the Supreme Court of the United States upheld that a business cannot be required to collect and remit sales and use tax in a state unless it has a substantial physical presence in that state.

In the early 1990s, North Dakota challenged the physical presence precedent with the argument that the Quill Corporation had established a substantial connection with the state through its catalog and phone sales. That argument has now intensified with the explosion of ecommerce, which allows retailers easy access to markets in all states. As untaxed internet sales have increased, states’ sales tax revenues have declined (in spite of the fact that consumers are supposed to remit use tax when sales tax wasn’t collected at the point of sale). It is time, many lawmakers in many states are saying, to challenge Quill.

Challenges to policies aimed at capturing remote sales tax revenue in Alabama and South Dakota are already making their way through the courts. If Wyoming enacts HB 19 or similar legislation, it will likely end up in court, too. That’s the point: States are hoping that one of these cases will make it to the Supreme Court.

Meanwhile, efforts have long been underway in Congress to enact legislation that would grant states the authority to tax certain remote sales. Several measures have been introduced: the Marketplace Fairness Act (MFA), the Remote Transaction Parity Act, and the Online Sales Simplification Act. To date, not one has been able to surmount the opposition. States are therefore also pursuing a judicial solution.

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