The Supreme Court recently released its decision on the landmark sales tax case, South Dakota v. Wayfair. The Court overturned the “physical presence” standard that previously governed the determination of when sales tax was due. Wayfair held that the correct standard in determining the constitutionality of a state sales tax law is whether the tax applies to an activity that has “substantial nexus” with the taxing state. State officials around the country are in the process of exploring and/or implementing a range of possibilities for taxing sales by remote sellers to take advantage of the new economic Wayfair test and the landscape is changing rapidly.
The Wayfair decision has made it critical for remote sellers to review their current business against existing and quickly evolving state legislation in order to make determinations as to which states they may now be required to collect and remit sales tax.
What Does This Mean for Art Dealers?
A common misconception about the Wayfair ruling is that it only affects online sales or e-commerce businesses. Unfortunately, this is not the case. Any business that ships or performs services remotely into a state is subject to the new economic nexus standard. Each state is free to put in place their own economic nexus rules with the common threshold adoption being sales of over $100,000 or 200 transactions in a 12-month period into a state creating a sales tax collection requirement for that state. Many art dealers and galleries are finding themselves having to be compliant in multiple states due to only a handful of transactions being shipped into economic nexus states. Currently, over 30 states have enforceable economic nexus rules with many more states to enforce their economic nexus rules later this year. We expect most, if not all states, to have a form of economic nexus by the end of 2019.
Common Nexus Pitfalls for Art Dealers
Besides economic nexus, there are other forms of nexus art dealers should be aware of. Many art dealers and galleries consign their pieces to other galleries in other states or may send their art pieces to an auction in another state. This can also potentially create nexus. Sales representatives, agents, and online referrers can also create nexus.
What Should Art Dealers Do Next?
It is important to understand your business’s activity and which states you are shipping art pieces to. Are you shipping to states that have currently enforceable economic nexus rules? What are your sales per state in a calendar year and how many transactions per state? Are you collecting deposits or are customers paying for their art pieces in increments through a period of time and when should you remit sales tax to the state? Are you using ArtBase, ArtLogic or any other form of accounting software and can it implement to a sales tax software solution? We understand these new rules can have a major impact on your business. We are here to help and can offer consultation on these new requirements.
Please feel free to reach out to us for a no-cost proposal at email@example.com or call 914.219.0610.