On August 29, 2018, in response to South Dakota v. Wayfair, the Maryland General Assembly’s Joint Committee on Administrative, Executive, and Legislative Review (AELR) approved the Comptroller of Maryland’s emergency regulations imposing economic nexus standards to require remote vendors lacking Maryland physical presence to collect Maryland sales tax on in-state sales.
Wayfair discards the antiquated “physical presence rule” – a rule which allowed retailers lacking a physical presence in a state to avoid any obligation to collect and remit sales taxes. Significantly, the Court overruled the long-standing interpretation of the Commerce Clause, finding that “the physical presence rule of Quill is unsound and incorrect,” and that virtual and economic contacts may indeed satisfy the necessary substantial nexus requirement. In Wayfair, the Court ultimately upheld the South Dakota statute requiring retailers without a physical presence in South Dakota to collect sales tax for either annual in-state sales exceeding $100,000, or at least 200 transactions involving in-state deliveries.
Until now, Maryland regulations lacked an economic nexus standard-maintaining only a physical presence standard. Maryland’s new emergency regulations mimic the provisions of the South Dakota statute upheld in Wayfair with its new section .33B(5) to COMAR 03.06.01.33 which states that:
[A] person engages in the business of an out–of–State vendor if (1) the person sells tangible personal property or taxable services for delivery in the State, if, during the previous calendar year or the current calendar year, the person (a) has gross revenue from the sale of tangible personal property or taxable services delivered in the State that exceeds $100,000 or (b) sold tangible personal property or taxable services for delivery into the State in 200 or more separate transactions.
In other words, remote vendors have sufficient economic nexus and, thus, must collect Maryland sales tax for their deliveries in Maryland if, during the previous or current calendar year, they have either (1) more than $100,000 (gross) in property or service sales delivered in Maryland, or (2) at least 200 separate sales transactions into Maryland.
The emergency regulations are effective October 1, 2018, and expire on March 30, 2019. Upon expiration, the normal rulemaking process must occur-including a period of time provided for public comment.
With the implementation of the emergency regulations, it is imperative that remote vendors maintain records to evaluate whether or not they have sufficient economic nexus. Fortunately, on September 14, 2018, the Comptroller of Maryland issued a Tax Alert to provide additional guidance to remote vendors about this.
The Tax Alert emphasizes that once the emergency regulations are effective on October 1, 2018, all remote vendors should begin tracking gross revenues and sales delivered in Maryland to determine whether they have sufficient economic nexus. According to the Tax Alert, the tracking requirement is not applicable to sales delivered into Maryland before October 1, 2018.
If a remote vendor does have sufficient economic nexus under the emergency regulations, the Tax Alert indicates that from October 1, 2018 through December 31, 2018, those vendors are required to register with the Comptroller and remit sales tax as soon as such nexus is established. The Tax Alert notes that remote vendors should use a monthly filing schedule, but such schedule is subject to adjustment by the Comptroller’s office depending on the amount of taxable sales. Additionally, registration with the Comptroller is required by the first day of the following month in which the remote vendor’s nexus was sufficient; however, remote vendors may voluntarily register and collect Maryland sale tax before October 1, 2018, if they wish.
For the 2019 calendar year and thereafter, the Tax Alert provides that even remote vendors previously exempt from registration must track all sales delivered into Maryland. Any time during the calendar year that sufficient economic nexus is established, the remote vendor must register with the Comptroller by the first day on the following month and immediately begin collecting Maryland’s sales tax.
The Tax Alert further clarifies that remote vendors with sufficient economic nexus should continue to track sales delivered into Maryland; however, remote vendors lacking such nexus may discontinue collecting Maryland sales tax. Those remote vendors that discontinue collecting the tax should still maintain accurate records that clearly show that the criteria were not met.
Finally, the Tax Alert provides six examples to illustrate the emergency regulations’ tax collection and remittance obligations. All examples assume that the remote vendors lack a physical presence in Maryland. The examples provided in the Tax Alert are as follows:
Remember, the emergency regulations are effective beginning October 1, 2018 through March 30, 2019. Under these regulations, remote vendors with sufficient economic nexus must collect and remit Maryland sales tax for their deliveries in Maryland. Sufficient economic nexus exists if, during the previous or current calendar year, a remote vendor has either (1) more than $100,000 (gross) in property or service sales delivered in Maryland, or (2) at least 200 separate sales transactions into Maryland.