Texas Comptroller Amends Remote Seller Regulations

On June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, Inc., redefining sales and use tax nexus. In Wayfair, the Court held that the taxpayers in question had substantial nexus with South Dakota due to the amount of sales made into the state. The ruling overturned the physical presence nexus standard established in 1992 by Quill Corp. v. North Dakota, paving the way for the new economic nexus standard.

Following the decision, the Texas Comptroller issued proposed amendments to regulations regarding remote sellers (34 Texas Administrative Code § 3.286). The proposed amendments have now been adopted and will go into effect January 1, 2019, with collection requirements beginning October 1, 2019.

Out-of-state sellers with Texas customers need to be familiar with the requirements, thresholds, triggers and deadlines for these new state sales tax rules.

“Engaged in Business” Definition

The definition of “engaged in business” in Texas now includes sections of the Texas Tax Code that had previously been omitted (§151.107) because the Quill decision found them unconstitutional. New language has been inserted into the administrative code, so that a business is considered to be engaged in business in Texas if it:

1. Engages in regular or systematic solicitation of sales of taxable items in this state by the distribution of catalogs, periodicals, advertising flyers or other advertising, by means of print, radio or television media, or by mail, telegraphy, telephone, computer data base, cable, optic, microwave or other communication system for the purpose of effecting sales of taxable items
2. Solicits orders for taxable items by mail or through other media including the Internet or other media that may be developed in the future

The revised regulation also states that:

3. a broadcaster, printer, outdoor advertising firm, advertising distributor or publisher that broadcasts, publishes, displays or distributes paid commercial advertising in this state that is intended to be disseminated primarily to consumers located in this state and is only secondarily disseminated to bordering jurisdictions, including advertising appearing exclusively in a Texas edition or section of a national publication, is considered for purposes of this subsection to be the agent of the person placing the advertisement and is not considered to be engaged in business in this state as a result of those acts

Safe Harbor Limits

Safe Harbor thresholds have been added to the Texas regulations in order to follow the emphasis in the Wayfair decision that “States may not impose undue burdens on interstate commerce.” These provisions state that:

1. The comptroller will not enforce the permit requirement on a remote seller whose total Texas revenue in the preceding 12 calendar months is less than $500,000. If a remote seller’s total Texas revenue exceeds that amount, the remote seller must obtain a permit and begin collecting tax
2. “Total Texas revenue” means the gross revenue from the sale of tangible personal property and services for storage, use or other consumption in this state recognized under the accounting method used by the seller and includes separately stated handling, transportation, installation and other similar fees collected by the seller in connection with the sale. Total Texas revenue includes taxable, nontaxable and tax-exempt sales. A sale of an item for delivery in this state is presumed to be a sale for storage, use or other consumption in this state. With respect to a service, “use” means the derivation in this state of direct or indirect benefit from the service.

Permit and Collection Deadlines

Remote sellers must obtain a permit and begin collecting tax no later than the first day of the fourth month after the month in which that seller exceeds the safe harbor amount. For example, if during the period from July 1, 2018, through June 30, 2019, a remote seller’s total Texas revenue exceeds the safe harbor amount, the remote seller must obtain a permit and begin collecting use tax no later than October 1, 2019.

Transition Rule

Remote sellers will be subject to the permit requirement and the collection obligation beginning on October 1, 2019. The initial 12 calendar months for determining a remote seller’s total revenue will be July 1, 2018, through June 30, 2019. If a remote seller’s total revenue during that period exceeds the safe harbor amount, the seller must obtain a permit and begin collecting use tax no later than October 1, 2019.

Terminating Collection Obligations

A remote seller that must be permitted may terminate its collection obligation after 12 consecutive months in which the remote seller’s total Texas revenue for the preceding twelve calendar months is below the safe harbor amount. In order to terminate its collection obligation, a remote seller must submit a form prescribed by the comptroller. (This form has not yet been published.) Afterward, the remote seller must resume collection on the first day of the second month following any 12 calendar months in which the remote seller’s total Texas revenue exceeds the safe harbor amount. For example, if the total Texas revenue of a remote seller that previously terminated its collection obligation exceeds the safe harbor amount during the period of January 1, 2020, through December 31, 2020, the remote seller must resume collection on February 1, 2021.  A remote seller that terminates its collection obligation must comply with the record retention requirements and maintain sufficient documentation to verify the date on which the remote seller terminated its collection obligation or ceased to engage in business in this state.

Overwhelmed? Need Help?

Weaver’s State and Local Tax team can help you develop a road map to achieving long-term compliance and minimizing your taxes in this new environment. If any of the Texas changes described here might affect your business, we would be happy to help you obtain the necessary permit and submit your ongoing forms and remittances.

To find out how Weaver could help your company, please contact us or see the latest state tax news at weaver.com.

© 2019