This past June the United States Supreme Court reached a decision in a very important case pertaining to sales tax. You may have actually heard about it?! For the first time in 30 years or so, sales tax made front page headlines across the nation! The case was South Dakota v. Wayfair. In their decision, the Court ruled in favor of a South Dakota law that requires any out-of-state seller that delivers more than $100,000 of goods or services or has 200 or more transactions in South Dakota, on an annual basis, to collect sales tax from purchasers location in the state.
This ruling overturned the long-standing physical presence rule set out in Quill v. North Dakota and set the foundation for all other states to enact similar laws if they don’t already have them. As you can imagine many states have been passing new legislation to enact economic nexus laws in their states. States have been losing excessive amounts of revenue these past decades, as more and more shoppers stopped going to brick & mortar storefronts and conducted most of their shopping online. In the past, when consumers shopped online, they enjoyed their purchases tax free most of the time, with the exception of some of the larger sellers like Amazon who have affiliates and warehouses in many states (physical presence).
So what exactly does this mean for photographers? Well, it depends. It depends on how much business you are doing into a particular state and whether or not that state has enacted an economic nexus law. In simple terms, most states are enacting laws with thresholds similar to the South Dakota law, which sets economic nexus thresholds at selling more than $100,000 of goods or services or having 200 or more transactions within the state, on an annual basis. For example, if you have a photography business in State A, where you business is located, but have more than 200 sales into State B, a neighboring state, who have enacted an economic nexus law, you may now need to collect sales tax in State B even though you have no physical presence there.
In reality, my opinion is that only larger scale photography businesses will be impacted by the new economic nexus laws in their neighboring states. And this was exactly the intent of these new laws, the States didn’t want to place an undue burden on the very small business, which is the reason for the thresholds of $100,000 or 200 sales transactions on an annual basis. The main goal was for States to recoup lost taxes from larger online sellers like Wayfair, Newegg, Overstock and other similar online retailers.
At the end of the day, you should be aware as to whether or not the states in which your clients reside have an economic nexus law and you should be keeping track of your sales transactions. You need to be an educated business owner to know whether or not your are impacted. Economic nexus rules are being enacted monthly and will likely continue to be enacted in states across the nation. We may even see that states try and lower the thresholds. By creating lower thresholds, they would be able to cast a wider net for tax revenue. The Quickbooks Resource Center has a great resource that lays out the economic nexus rules state by state, click here.
I hope you found this article interesting and hopefully it settled the fears of many photographers who saw the headline news this past summer and just weren’t sure how this recent Supreme Court decision affected their photography business. Sales tax can be scary, but it is important to make sure you are compliant with your state and local laws so you don’t find yourself on the hook for any past due sales tax liability you should have collected from your clients!
If you have more sales tax questions, please see my Super Simple Sales Tax for Photographers guide which addresses all the nooks and crannies of this pesky sales tax stuff!