Recent nonstatutory state reactions to Wayfair

By Jamie C. Yesnowitz, J.D., LL.M., Washington, D.C.; Chuck Jones, CPA, J.D., Chicago; Lori Stolly, CPA, Cincinnati; and Patrick K. Skeehan, J.D., Philadelphia

Editor: Greg A. Fairbanks, J.D., LL.M.

Over a year and a half ago, the U.S. Supreme Court overturned the long-standing physical presence standard for sales-and-use-tax nexus in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018). Since then, nearly all states imposing a sales and use tax have adopted economic nexus standards for remote sellers, based on the South Dakota thresholds at issue: $100,000 in sales or 200 separate transactions into the state, or some variation of these thresholds.

Several states have begun extending the economic nexus standard approved in Wayfair beyond sales tax regimes, adopting economic nexus provisions for corporate income taxes. Many states have enacted these standards after careful consideration through the legislative process. Others have acted through their revenue departments, either promulgating regulations under existing statutes or issuing administrative pronouncements. This item examines recent nonlegislative efforts by three state taxing authorities to adopt Wayfair-type economic nexus standards: Kansas for sales tax and Pennsylvania and Massachusetts for corporate income tax.


In response to Wayfair, the Kansas Legislature passed two bills last year that would have required remote sellers to collect sales tax if they exceeded a $100,000 sales threshold, but Kansas Gov. Laura Kelly vetoed both bills for political and budgetary reasons. Sensing this deadlock would continue for some time, the Kansas Department of Revenue issued a notice setting its own policy for remote sellers doing business in the state (Kan. Dep't of Rev., Notice 19-04 (Aug. 1, 2019)). The notice indicated that remote sellers without a physical presence in Kansas are required to collect and remit tax on sales delivered into the state regardless of the amount of sales made to in-state customers, effective Oct. 1, 2019. The notice referred to a statute giving Kansas the authority to require retailers doing business in the state to collect and remit tax under the provisions of the U.S. Constitution (Kan. Stat. §79-3702(h)(1)(F)). This policy made Kansas the first and only state to impose a collection obligation on remote sellers without any safe-harbor sales thresholds.

In late September, the Kansas attorney general issued an opinion concluding that the Kansas revenue department's interpretation of the state's sales tax nexus statute was invalid and that the notice had no legal effect (Kan. Atty. Gen., Opinion 2019-08 (Sept. 30, 2019)). The attorney general determined that the Kansas revenue department lacked the statutory authority to issue a notice establishing a new standard for applying the Kansas remote-seller collection statute followingWayfair.

In response to the attorney general's opinion, the Kansas revenue secretary released a statement defending the viability of the notice, arguing that the revenue department is required to enforce Kansas statutes enacted by the legislature and would proceed with enforcement of the notice (Kan. Dep't of Rev., "Secretary Burghart's Statement on Attorney General Derek Schmidt's Opinion of the Collection of Taxes from Out-of-State Retailers" (Sept. 30, 2019)). Gov. Kelly also issued a statement in defense of the notice, explaining that it served to reaffirm fairness between Kansas businesses and out-of-state retailers from a sales tax perspective (Kan. Office of the Governor, "Governor Responds to the Attorney General's Opinion on Notice 19-04" (Oct. 1, 2019)). The resulting clash between the Kansas Department of Revenue and the attorney general over the enforceability of the notice creates unclear collection requirements for remote sellers with Kansas customers.


Pennsylvania became one of the first states to use Wayfair to adopt a bright-line economic nexus standard for corporate net income tax (CNIT). The Pennsylvania Department of Revenue adopted the standard through a bulletin in which it announced a $500,000 gross receipts threshold for purposes of establishing a CNIT filing requirement for tax years beginning on or after Jan. 1, 2020 (Pa. Dep't of Rev., Corporation Tax Bulletin 2019-04 (Sept. 30, 2019)).

Under Pennsylvania law, CNIT is imposed on any corporation doing business in Pennsylvania, but "doing business" is not statutorily defined (72 Pa. Stat. §7402). Historically, the Pennsylvania revenue department considered a corporation to be doing business in Pennsylvania where it had a physical presence in the state. Post-Wayfair, the revenue department announced that it would consider out-of-state corporations to be doing business in the state "to the extent they are taking advantage of the economic marketplace of the Commonwealth regardless of whether they are physically present" in the state (Corporation Tax Bulletin 2019-04, p. 2). However, the bulletin applies the $500,000 gross receipts threshold to establish a rebuttable presumption that an out-of-state corporation has a CNIT filing requirement.

The gross receipts threshold can be met if a business has direct or indirect gross receipts from the sale of tangible personal property, services, or intangibles that are sourced to Pennsylvania. The Pennsylvania revenue department clarified that the new economic nexus standard would not apply to taxpayers claiming exemption from the imposition of CNIT under P.L. 86-272, the Interstate Income Act of 1959, but that taxpayers having economic nexus with Pennsylvania will nonetheless be required to file a CNIT report. The bulletin is not intended to apply to personal income tax or other Pennsylvania taxes.


Most recently, in October, the Massachusetts Department of Revenue promulgated a final regulation adopting an economic nexus standard for purposes of Massachusetts corporate excise tax (CET) by imposing a filing requirement for out-of-state corporations with Massachusetts receipts exceeding $500,000 in a tax year (830 Code Mass. Regs. §63.39.1). The Massachusetts revenue department updated its existing CET regulation to reflect changes in the law since the regulation was last revised, including the issuance of the Wayfair decision. The regulation expands the state's authority to levy CET on any business having "considerable in-state sales derived through either economic or virtual contacts" with the state, citing Wayfair as authority for this position.

The final regulation provides that general business corporations may still be exempt from CET under P.L. 86-272 if their activities in Massachusetts are limited to the solicitation of tangible personal property. In determining whether the sales threshold has been exceeded for an out-of-state corporation, the Massachusetts revenue department will include the Massachusetts sales of a related person engaged in a unitary business with the corporation. Finally, a corporation that is a general or limited partner in a partnership will be deemed to have nexus if the partnership's activities, if conducted directly by the business corporation, would subject that corporation to CET. The policies adopted in the regulation went into effect on Oct. 18, 2019, the date the regulation was finalized (1402 Mass. Reg. 79 (Oct. 18, 2019)). It remains unclear to which tax years the regulation is intended to apply.

Authority to adopt nonstatutory economic nexus provisions

Although all three states have taken different approaches to the adoption of economic nexus standards after Wayfair, the looming question is whether the state revenue departments in Kansas, Pennsylvania, and Massachusetts can impose these standards without explicit statutory authority. The Massachusetts regulation adopting a $500,000 gross receipts standard for the CET stands on stronger legal footing than a mere administrative pronouncement, given that the Massachusetts Department of Revenue first circulated proposed amendments to the nexus regulation in May, followed by a public comment period.

In contrast, the Kansas notice and Pennsylvania bulletin are merely pronouncements of departmental policy, without the force of law. Both taxing authorities insist that they are interpreting existing statutory provisions by applying the Wayfair decision to existing nexus laws. The Kansas revenue secretary went as far to say that the notice does not have the force of law, but that a regulation was not needed to explain a Kansas law that is "plain, unambiguous and . . . self-executing." Given the Kansas attorney general's opinion that the notice is invalid and not lawfully adopted, the Kansas revenue department's attempt to enforce the remote-seller policy is likely to invite legal challenge. As a result, remote sellers may decide to refrain from collecting and remitting Kansas sales tax until legislation is enacted (possibly as early as the 2020 Kansas legislative session) or the notice is revised with safe-harbor thresholds at least as substantial as the South Dakota standards endorsed in Wayfair. In Pennsylvania, out-of-state corporations may similarly take the position that the Pennsylvania revenue department lacks the authority to enforce its bulletin without clearer statutory or even regulatory authority.

As other states are likely to continue adopting economic nexus standards for corporate income tax purposes in 2020, it will be interesting to see whether they follow the lead of Kansas, Pennsylvania, and Massachusetts by setting administrative policy as opposed to deferring to their state legislatures. If they take the former route, the question becomes whether remote sellers will push back against these policies, thereby setting the stage for further litigation in the continually evolving post-Wayfair environment.


Greg Fairbanks, J.D., LL.M., is a tax managing director with Grant Thornton LLP in Washington.

For additional information about these items, contact Mr. Fairbanks at 202-521-1503 or

Contributors are members of or associated with Grant Thornton LLP.

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