New Georgia Law Lowers Economic Nexus Threshold, Eliminates Notification Option for Remote Sellers

By Tim Clancy, State and Local Tax Practice Leader

HB 182, passed during Georgia’s latest legislative session and signed by Governor Brian Kemp on April 28, 2019, will lower the economic nexus threshold to over $100,000 of gross revenue or 200 or more separate retail sales for retailers making sales of tangible personal property outside Georgia for delivery to purchasers in Georgia. 

Those retailers will be required to collect sales and use taxes from the purchasers if their sales for the current or previous calendar year exceed the threshold.  This goes into effect on January 1, 2020.

HB 182 also eliminates, as of its signature date, the purchaser and Department of Revenue notification option that exists under current law.  Georgia Department of Revenue Policy Bulletin SUT-2019-02, issued May 7, 2019, clarifies that as of April 28, 2019, remote sellers that met the threshold under current law and complied with the notification requirement must begin collecting sales and use taxes no later than July 1, 2019.   

Economic nexus rules stem from the United States Supreme Court decision in South Dakota v. Wayfair (U.S., No. 17-494) in 2018. 

That decision eliminated the decades-old physical presence requirement for “substantial nexus” for the imposition of sales and use taxes in the application of the Commerce Clause of the U.S. Constitution. The decision also implicitly endorsed South Dakota’s threshold of over $100,000 of gross revenue or 200 or more separate transactions as satisfying the Commerce Clause’s prohibition on tax regimes that overly burden interstate commerce.  Numerous states subsequently adopted economic nexus rules, many of which adopted the same threshold as South Dakota. 

Georgia’s current economic nexus rules became effective January 1, 2019, and set a threshold of previous or current calendar year sales producing over $250,000 of gross revenue or numbering 200 or more separate transactions.  Retailers meeting these thresholds have the option of either collecting sales and use tax or notifying purchasers and the Department of Revenue of the purchasers’ Georgia sales and use tax obligations. 

Considerations

Many states have chosen to model their thresholds on those of South Dakota in attempts to avoid legal challenges, particularly to economic nexus.  However, larger states imposing the same thresholds as South Dakota may also be open to challenge under the Commerce Clause for unduly burdening interstate commerce. 

In states such as Texas, for example, a seller may argue that it had not availed itself of the state’s marketplace to the same degree as if it had made the same volume of sales in South Dakota.  In addition, lower thresholds in larger states may cause state tax enforcement resources to be used inefficiently.  

Therefore, we are noticing a trend in that some larger states are considering raising, or in several cases, have already raised, their economic nexus thresholds to higher amounts.  For example, California and New York have raised their economic nexus thresholds to $500,000 and $300,000, respectively.

Georgia’s decrease in the collection threshold and elimination of reporting options presents a burden particularly to smaller retailers who likely do not have systems in place to accumulate the information necessary for compliance.  The effective date of the change gives those small retailers only a few months to implement technology solutions and new procedures.  This may be quite difficult given Georgia’s array of the differing county tax rates and local option taxes.

For additional information, please contact:

Tim Clancy
State and Local Tax Practice Leader
Windham Brannon P.C.
678.510.2804
tclancy@windhambrannon.com

Denise Mummert
Director, Tax Services
Windham Brannon P.C
678.510.2750
dmummert@windhambrannon.com