Can a City Impose an Economic Nexus Law?

February 2020

The U.S. Supreme Court ruled in South Dakota v. Wayfair that it is constitutional when a State imposes an economic nexus law. But the Court said nothing about a city imposing an economic nexus law. So, the question becomes, is it legal?

Nome, Alaska is the first city in the United States to impose an economic nexus law which went into effect on September 1, 2019. Alaska does not have a state sales tax but local jurisdictions are permitted to impose their own local sales tax.

Remote sellers and marketplace facilitators have economic nexus in Nome if in the previous or current calendar year, sales into the city are more than $100,000 AND more than 100 separate transactions. Nome city ordinance defines a marketplace facilitator as a person who owns or maintains a marketplace and who, in regards to a seller’s goods or services, transmits or otherwise communicates an offer or acceptance and:

  • Provides payment processing services;.
  • Provides fulfillment or storage services;.
  • Sets prices;v
  • Brands sales as those of the marketplace facilitator;.
  • Takes orders; or
  • Provides customer service or assists with returns or exchanges.

Other Alaskan cities are also interested in imposing such a law. To minimize challenges due to the non-uniform laws, the Alaska Municipal League have established the Alaska Remote Sellers Intergovernmental Agreement. Thus far, 22 local governments have signed onto the agreement. The goal of the agreement is to work towards a state-wide administration of online sales tax collection.

Alaska just added another layer to economic nexus. What’s next? For help with economic nexus, contact Sales Tax Defense.

Success Story

Sales for Resale – What’s so Hard to Understand

Sales Tax Defense LLC represented a company that was a subcontractor and provided repair and maintenance services to the prime contractor. The prime contractor then resold the repair and maintenance services to a government entity. One would think that this was a simple sales for resale. No sales tax would be due on the subcontractor’s sales to the prime contractor.

The subcontractor was audited for sales tax. The New York State Department of Taxation and Finance refused to accept that the subcontractor’s sales were for resale and issued a very large assessment. The State then audited the prime contractor and assessed use tax due on sales from the subcontractor.

Sales Tax Defense represented both the subcontractor and prime contractor. We petitioned for an Administrative Law Judge hearing. We lined up witnesses from both companies and a witness from the government entity. We collected exhibits to show the true nature of the sale for resale. Less than a week before the trial, the State agreed to our position and settled the case. Sometimes it just takes perseverance…and having the law on your side!