If you are selling goods or products online and some of your customers are located in Nevada, you need to be aware of the state’s Internet sales tax rules. As you read, keep in mind that collection of sales tax on Internet sales has been a matter of ongoing debate both at the state and federal level.
The federal government is currently considering legislation that would affect large Internet retailers and how online sales taxes are collected in all states. The proposed federal law, called the Marketplace Fairness Act of 2013, would allow states to require sellers not physically located in their state to collect taxes on online and catalog sales made to people in their state. Sellers that make $1 million or less in annual sales and have no physical presence in the state would be exempt from this requirement. States would have to meet certain criteria to simplify their sales tax laws and make sales tax collection easier before they could require sellers to collect the tax.
Below is an article on the current rules on Internet sales tax in Nevada. The new federal law scheduled to be voted on in May 2013 would affect all state Internet sales tax laws so be sure to check for updates in this area. (We will continue to keep you updated as well.)
The General Rule: Physical Presence in the State
The current default rule throughout the United States is that you must collect sales tax on Internet sales to customers in those states where your business has a “physical presence.” The physical-presence rule is based on a 1992 United States Supreme Court decision, Quill Corp. v. North Dakota, that addressed the obligations of mail-order businesses to collect sales tax on out-of-state sales; the decision has been extended to include online retailers. Generally speaking, a physical presence means such things as:
- having a warehouse in the state
- having a store in the state
- having an office in the state, or
- having a sales representative in the state.
While the physical-presence rule may seem clear, in the case of Nevada, as well as a fair number of other states, it is necessary to emphasize that in Quill, the Supreme Court discusses not only physical presence, but also several types of potential “nexus” (connection) between a business and a state. One type of nexus is based on the Due Process Clause of the Constitution and another type is based on the Commerce Clause of the Constitution. The type of “nexus” the Supreme Court ultimately found relevant for mail-order businesses was the Commerce Clause version, which—as described by the Supreme Court—means physical presence. However, many states, including Nevada, have used the term “nexus” rather than “physical presence” in their sales tax laws, regulations, or other official documents, and, in the process, have sometimes defined nexus in ways that some people may think goes beyond physical presence.
Limited guidance on how physical presence—or “nexus”—is determined specifically under Nevada law is available in Section 372.724(1)(b) of the Nevada Revised Statutes, which states simply and broadly that, “The imposition, collection and remittance of the sales tax apply to every retailer whose activities have a sufficient nexus with this State to satisfy the requirements of the United States Constitution.” As the requirements of the Constitution are interpreted by the Supreme Court, this statement would seem, in effect, to point back to Quill. (Note: All of Chapter 372 of the Nevada Revised Statutes, which covers sales and use taxes, is available online as a single webpage.)
As you might expect, the corollary to the physical-presence rule is that, if you do not have a physical presence in the state, you generally are not required to collect sales tax for an Internet-based sale to someone in that state. On this point, it is worth mentioning that the Nevada Department of Taxation (DOT) publishes an online FAQ page covering questions on various state taxes including sales tax; in response to a question on Streamlined Sales Tax, the DOT refers to “the U.S. Supreme Court holding that a state may not require a seller that does not have a physical presence in the state to collect tax on sales into the state.” Note that in this statement, the DOT refers to physical presence rather than nexus.
Example 1: You are operating solely out of a warehouse in Baltimore, Maryland and make a sale to a customer in Sunrise Manor, Nevada—a state where your business has no physical presence: You are not required to collect sales tax from the Sunrise Manor customer.
Example 2: You are operating solely out of a store in Reno, Nevada and make a sale to a customer in Paradise, Nevada: You are required to collect sales tax from the Paradise customer.
Example 3: After several years of operating solely out of a warehouse in Baltimore, Maryland, you open a one-room satellite office just outside of Las Vegas, Nevada—a state where previously you had no physical presence. A day later, you make a sale to a customer in Henderson, Nevada: You are required to collect sales tax from the Henderson customer.
A limited number of items sold via the Internet to Nevada customers may be exempt from sales tax under Nevada law. For example, seeds and annual plants that ordinarily produce food for human consumption are exempt from sales tax; similarly, food for human consumption, other than prepared food, is exempt from sales tax. For further information, check Sections 372.260 through 372.350 of the Nevada Revised Statutes and Sections 372.540 through 372.715 of the Nevada Administrative Code.
The Customer’s Responsibility
In cases where the online retailer does not have to collect sales tax, it is the customer’s responsibility to pay the tax—in which case it is known not as a sales tax, but, rather, a “use tax.” In its overview of the use tax, the DOT online FAQ page on state taxes states that, among other things, the use tax applies to Internet purchases; the same FAQ page also provides eight examples where sales tax is not collected and use tax is due, including purchasing items from an Internet site.
For statutory statements about the use tax, see NRS Sections 372.185 through 372.258.
Nevada’s Special Amazon Agreement
As reported by the Nevada Governor’s Office, as well as, among other places, the Las Vegas Review-Journal and The Wall Street Journal, in April of this year, Nevada Governor Brian Sandoval reached an agreement with Amazon.com to have Amazon pay Nevada sales tax starting no later than 2014. This was just one action in a much larger, national debate about whether Internet retailers with no physical presence in many states should nonetheless be required to pay sales tax in those states. In this regard, Nevada’s special agreement with Amazon is slightly unusual; instead of individual agreements with particular companies, states concerned with this issue more often have passed—or tried to pass—what is commonly called an “Amazon Law;” in other words, special tax legislation that targets larger Internet retailers such as Amazon.com and Overstock.com. (Indeed, according to another Las Vegas Review-Journal article, in May 2011 a coalition of Nevada hotel-casinos and businesses was pushing for new sales tax legislation.)
While you might not know it from looking solely at Nevada’s sales tax statute, the issue of whether to require online retailers to collect sales tax in states where they have no physical presence has been a matter of significant debate in Nevada, as well as in other states and at the federal level. However, at this time—and putting aside Nevada’s special agreement with Amazon.com—Nevada has not enacted any law that would require out-of-state retailers to collect sales tax from Nevada customers.
In Nevada, the physical-presence rule continues to apply for Internet retailers. However, because the issue is hotly debated in various quarters, you should consider checking in periodically with the Nevada Department of Taxation to see if the rules have changed. For more general information on taxes on Internet sales, see Nolo's article Sales Tax on the Internet. And, for information on the rules about collecting sales tax for Internet sales in any other state, see Nolo’s article, 50-State Guide to Internet Sales Tax Laws.