When the U.S. Supreme Court ruled in South Dakota v. Wayfair that states could require out-of-state online retailers to pay state sales taxes, we predicted a huge impact on e-commerce businesses.
We hit the nail right on the head as Minnesota’s tax laws regulating out-of-state online sellers and “marketplace providers” are now in effect and ready to dramatically impact the way e-commerce is conducted in our state.
In 2017, before Wayfair was decided, Minnesota enacted Minnesota Statute § 297A.66 that required remote sellers and marketplace providers to collect sales tax on sales made in Minnesota regardless of the company’s physical presence in Minnesota. Minnesota’s statute did not immediately take effect, however, because it conflicted with then-controlling federal law that limited the ability of states to collect sales tax from out-of-state sellers. But when Wayfair overruled this federal law, the path was cleared for Minnesota’s statute to take effect, making us one of the first states with a valid law on the books designed to collect sales taxes on out-of-state online commerce.
Who, What, When?
Minnesota’s law binds remote sellers as well as marketplace providers. The Minnesota Department of Revenue provides the following definitions:
- Remote Sellers: Businesses that sell products or services into Minnesota or another state – online or by mail, telephone, etc. – but have no physical presence in that state.
- Marketplace Providers: Businesses that facilitate a retail sale – whether they receive compensation or not – by both:
- Listing or advertising the seller’s products; and
- Processing customer payments, directly or through a third party.
The new law took effect on October 1, 2018, and now requires that remote sellers and marketplace providers must register and begin collecting sales tax in Minnesota.
Small Seller Exception
The new law contains an exception for small sellers. Remote sellers need not collect sales tax until their sales over a 12-month period total either:
(1) 100 or more retail sales shipped to Minnesota; or
(2) 10 or more retail sales shipped to Minnesota that total more than $100,000.00.
Where We Now Stand
Because Minnesota’s law is just now taking effect, little guidance exists for companies seeking to comply with the new requirements. Other states have enacted, or are currently enacting, laws similar to Minnesota’s. But those laws differ in significant ways from our, which may compel businesses that sell in multiple states to comply with a patchwork of confusing and perhaps conflicting state laws.
Things may still change. In September 2018, Congress proposed a bill that would bar states from enacting laws like Minnesota’s. This proposed law is not likely to pass soon but looms on the horizon for possible change in the future.
Since Minnesota’s law is now effective, companies subject to, or impacted by, the new law’s requirements – retailers, purchasers, and marketplace providers – should take immediate steps to insure compliance.
For a full explanation of the Wayfair decision, please see our recent post entitled Supreme Court Delivers Heavy Blow to Online Retailers But Amazon Remains Ahead of the Curve.
Jon L. Farnsworth is an attorney at Felhaber Larson. He regularly works with technology and e-commerce companies. Jon thanks law clerk Zach Alter for his assistance with this article.