The Maryland Comptroller has issued a tax alert instructing out-of-state vendors on how to apply recently approved regulations regarding sales tax collection obligations for out-of-state sellers. The guidance includes helpful information on how to apply the regulation’s $100,000 sales threshold and addresses timing issues related to complying with the new rule.
Maryland’s regulation is in response to the June 21, 2018 decision issued by the U.S. Supreme Court in South Dakota vs. Wayfair, Inc. The ruling overturned it’s 26 year old “physical presence” sales tax nexus standard established in Quill Corp. vs. North Dakota. In doing so, the Court upheld the constitutionality of South Dakota’s law establishing a sales tax collection requirement if a seller’s annual in-state sales are more than $100,000 or if a seller engages in 200 or more transactions involving in-state deliveries of goods or services. Maryland’s regulation, which takes effect on October 1, 2018, includes the same dollar amount and sales transaction threshold as the South Dakota law. Specifically, the rule provides that an out-of-state vendor without a physical presence in Maryland that meets either of the following criteria, during the previous calendar year or the current calendar year, is required to register to collect sales tax on Maryland sales:
- Gross revenue from the sale of tangible personal property or taxable services delivered into Maryland exceeds $100,000.
- Sales of tangible personal property or taxable services for delivery into Maryland in 200 or more separate transactions.
The tax alert issued by the Comptroller states that out-of-state vendors should begin tracking gross revenues and sales delivered into Maryland to determine if they meet either the revenue or sales transaction thresholds requiring sales tax collection. However, to determine if either threshold is met, out-of-state vendors do not need to take into account any sales delivered into Maryland prior to October 1, 2018. An out-of-state vendor is required to register to collect Maryland sales tax by the first day of the following month in which either of the thresholds have been met.
For example, if an out-of-state vendor had Maryland gross revenues of $75,000 and 150 sales transactions from October 1, 2018 through December 31, 2018, the out-of-state vendor does not have nexus with Maryland in 2018 and is not required to register for sales tax collection. However, if during the month of May of 2019, the out-of-state vendor reaches Maryland’s gross revenues of over $100,000 for the calendar year (or 200 or more Maryland sales transactions), the out-of-state vendor must register with the Comptroller and begin collecting sales tax on June 1, 2019.
The Comptroller, unlike many other states that have recently implemented Wayfair provisions, has also provided much-needed clarification regarding the scope of the sales that vendors must consider in applying the thresholds. Specifically, all gross revenue and sales transactions from tangible personal property are considered for purposes of determining if either the gross revenue or sales transaction threshold has been met. For example, a vendor that makes $30,000 in sales to tax exempt customers and $90,000 in sales to customers that are not exempt would exceed the gross revenue threshold because in applying the gross revenue and sales transactions threshold, vendors are required to take into account both taxable and nontaxable sales. The application of the thresholds to total both taxable and nontaxable sales can result in vendors that make small amounts of taxable sales still having a sales tax collection obligation. This is consistent with many other states’ Wayfair provisions, as the thresholds are meant to protect smaller sellers from complying with potentially burdensome collection obligations, and not sellers that just have small amounts of taxable sales.
If you have any questions about the impact of the Wayfair decision on your business, please contact Michael Colavito or one of our tax advisors at 301.231.6200.