Update on South Dakota Online Sales Tax Collection
In the wake of the Wayfair case, the South Dakota Legislature met for a special session on September 12, 2018 to discuss issues related to remote sellers and e-commerce. Senate Bill 1 and Senate Bill 2 were signed into law by Governor Daugaard. For more information relating to South Dakota v. Wayfair, see my July 31, 2018 blog post at www.ktllp.cpa/blog.
Senate Bill 1
Senate Bill 1 (SB1) will go into effect on November 1, 2018. SB1 removes the injunction currently prohibiting South Dakota from enforcing the collection of sales tax from remote sellers meeting the thresholds defined in Senate Bill 106 (SB106). The removal of this injunction does not apply to the three sellers involved in the recent U.S. Supreme Court case (Wayfair, Overstock, and Newegg). As a reminder, SB106 requires remote sellers (businesses without a physical presence in South Dakota) to collect and remit sales tax to the state of South Dakota once they either:
- Have annual gross sales of $100,000 delivered to customers in South Dakota or
- Engage in 200 or more separate transactions per year of goods or services delivered to customers in South Dakota
Additionally, SB1 eliminates the State’s ability to sue remote sellers as it will no longer be necessary with the passage of this bill. The bill also includes a clause declaring a state of emergency as of the signing date.
Senate Bill 2
Senate Bill 2 (SB2) will go into effect March 1, 2019. SB2 defines the following key terms relating to online sales:
- Marketplace – any means by which any Marketplace Seller sells or offers for sale tangible personal property, products transferred electronically, or services for delivery into this state, regardless of whether the Marketplace Seller has a physical presence in the state
- Marketplace Provider – any person that facilitates a sale for a Marketplace Seller through a Marketplace by:
- Offering for sale by the Marketplace Seller, by any means, tangible personal property, products transferred electronically, or services for delivery into this state and
- Directly, or indirectly through any agreement or arrangement with third parties, collecting payment from a purchaser and transmitting the payment to the Marketplace Seller.
- An example of a Marketplace Provider is Amazon.
- Marketplace Seller – a retailer that sells or offers for sale tangible personal property, products transferred electronically, or services for delivery into this state, through a Marketplace that is owned, operated, or controlled by a Marketplace Provider.
SB2 requires marketplace providers to collect and remit sales tax to the state of South Dakota for a Marketplace Seller if the Marketplace Provider:
- Is also a seller meeting the SB106 thresholds described above or
- Facilitates the sales of at least one Marketplace Seller that meets the SB106 thresholds or
- Facilitates the sales of two or more Marketplace Sellers that when the sales are combined meet the SB106 thresholds, even if the Marketplace Sellers do not meet the thresholds separately.
SB2 does allow for a five percent margin of error allowance until June 30, 2024. This relief is granted to Marketplace Providers if the failure to collect or remit sales tax is due to incorrect or insufficient information provided by the Marketplace Seller. The five percent allowance does not apply if the Marketplace Provider and Marketplace Seller are related parties.
How to Become Licensed
Remote sellers and Marketplace Providers meeting the requirements in the bills discussed above should register for a South Dakota sales tax license at https://sd.gov/taxapp. Alternatively, remote sellers and Marketplace Providers can register with multiple states through the Streamlined system at www.streamlinedsalestax.org.
Additional information relating to remote sellers and Marketplace Providers is available on the South Dakota Department of Revenue website at www.dor.sd.gov. The tax professionals at Ketel Thorstenson, LLP are also here to assist you. Please call the professionals at KTLLP with any questions or concerns at 605-342-5630.