Today I want to talk about online vendors selling into a state where it has no physical presence. In 1992 the United States Supreme Court said that a state could not require an out of state vendor to collect its use tax from a mail order purchase by a state resident unless the vendor had a physical presence in that state.
States respected the physical presence test until the onslaught of online retail. Then, states began to require use tax collections on remote sales to its residents even when the vendor had no physical presence in the state, based upon the vendor’s “economic presence” in the state.
Mississippi has joined the ranks of the economic presence or nexus states. It adopted a rule requiring use tax collection of vendors lacking a physical Mississippi presence, if the vendor has $250K of annual Mississippi sales, and, in the words of the rule: “purposefully or systematically … (exploits) … the Mississippi market”.
The rule lists activities that trigger use tax collection. Some of the listed activities could be avoided, such as: television or radio advertising on a Mississippi station; advertising on any type of billboard, wallscape, bus bench, interiors and exteriors of buses or other signage located in Mississippi; advertising in Mississippi newspapers, magazines or other print media; and direct mail marketing to Mississippi customers.
But other listed activities, not so much: online banner, text or pop up advertising directed toward Mississippi customers; emails, texts, tweets and any form of messaging directed to a Mississippi customer; advertising to Mississippi customers through applications “apps” or other electronic means on customer’s phones or other devices; and telemarketing to Mississippi customers.
The Mississippi Department of Revenue’s new economic nexus rule is Rule 35.4.03.09, and can be found at: http://www.sos.ms.gov/adminsearch/ACProposed/00023022b.pdf
Comment. Several states now require remote online vendors to collect sales and use tax even though the vendor has no physical presence in the state, if they have an “economic” presence. This flies in the face of the physical presence requirement decreed by the U.S. Supreme Court for mail order sales back in 1992.
Taxpayers are challenging some of the new economic nexus rules in court. However, these challenges may be prempted. The U.S. Supreme Court has a case on its docket challenging the physical presence test. It is possible that the high court could rewrite this area of the law.
By John McCauley: I help people buy and sell businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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