May 22, 2019

Some nonprofits are reporting that direct mail entered in certain states by their service providers is now incurring state sales tax charges.  Mail service providers collecting state sales taxes from organizations without a physical presence is a result of the June 2018 Supreme Court case South Dakota v. Wayfair, in which the Court overturned the 1992 decision in Quill Corp. v. North Dakota.

Quill had used physical presence as the main qualifier for required registration in a particular state, obligating a company to charge, collect and remit sales tax.  Wayfair uses economic rather than physical presence as a taxing requirement, subject to a state’s minimum threshold, usually 200 transactions or $200,000 per year.      

The Tax Foundation has a useful set of articles that explain the Wayfair decision and its impact here.  While it was mainly targeted at online retailers with no physical presence in a state, the change has affected the service providers for nonprofit mailers.

Working with your mail service provider and your tax advisor, we understand that nonprofits should be able to avoid much of the impact by invoking their federal 501c3 and home state exemption.

There are differences among states; a few have no sales tax.  Others do not allow some or all nonprofits to be exempt from sales taxes: AL, CA, HI, GA, NC, SC, and WA.  We understand that some of these states may have other exemptions.  For example, California exempts printed sales messages in the form of direct mail.

Click here for a handy 50-state chart of nonprofit tax exemptions provided by Harbor Compliance.  And here for a Sales Tax Institute Remote Seller Nexus Chart.