NOMAD - No More Alaska Introduces Economic Nexus for Sales Tax

Many of us in the state and local tax world are taught very early in our careers an acronym to help remember the five states that do not have a state-level general sales tax. The acronym is NOMAD and the states are New Hampshire, Oregon, Montana, Alaska, and Delaware. It is important to use the precise term “state-level general sales tax” because each of these states does have sales and use tax and/or similar taxes imposed on either specific business types or in local jurisdictions. For example, while Alaska has no sales and use tax at the state level, local jurisdictions are allowed to impose sales and use tax. There are currently 106 municipalities and boroughs that impose a tax.

Most companies do not have a physical presence in Alaska, and if they do, it is generally in just one or a few jurisdictions, not 106. Because of the lack of physical presence, sales tax has not been a big issue in Alaska for most companies until now. On June 21, 2018, the U.S. Supreme Court overturned the requirement for a physical presence to create a sales tax nexus when deciding the Wayfair case. (South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)) This paved the way for states to impose an economic nexus which simply means that a requirement to collect sales tax can be created by crossing either a revenue threshold or a transaction threshold on sales made into the state. 

The thresholds in Alaska are $100,000 in gross revenue or 200 transactions. The thresholds are based on the previous calendar years business. So if in 2019 you had greater than 200 transactions or $100,000 in gross revenue from sales in or into Alaska, then you should consider registering for sales tax. The effective dates are based on the dates each jurisdiction signs on to the agreement. Tax collection should begin within 30 days of the effective date. The earliest effective date is 2/3/2020 and is for the city and borough of Juneau. We have added Alaska to our Economic Nexus Thresholds Chart.

I say consider because there is a requirement for marketplaces to collect and remit sales tax for third-party sellers. Once the marketplace begins collecting there is no requirement for registration if you only sell on a marketplace. However, if you sell through multiple channels the marketplace sales are included in the threshold calculations, even when the marketplace collects the tax.

Since the state does not collect sales tax, the local governments have banded together and signed an intergovernmental agreement to establish a commission that will provide governance over a streamlined, single-level administration of sales tax collection and remittance. This commission is called the Alaska Remote Sellers Sales Tax Commission. The Commission has appointed the Alaska Municipal League (AML) to administer the tax. We recently spoke with Nils Anderson, the Executive Director of the Alaska Municipal League on the Sales Tax and More Podcast.

Nils was very informative and provided some great information. He confirmed that they are talking with the marketplaces that are working on changing their systems so they can become compliant. As of now, there is not a definitive date for when the marketplaces will go live, but it could be as early as the end of April. Nils also confirmed that if 100% of a remote seller’s sales are through a marketplace then once the marketplace begins collecting there is no need for a seller to stay registered. Nils was candid in stating that not all jurisdictions may participate but they believe that the number of jurisdictions that do participate will exceed 80% of the potential tax that could be collected. The AML is well on its way to that number. As with all states, if you are over the thresholds and your exposure is material we suggest registration.

Now that Alaska has implemented an economic nexus, I do not believe it can be considered a NOMAD state any longer. We now have four states without a state-level general-level sales tax. I have been working hard on a new acronym without the A for Alaska, but the only thing I can come up with is MOND. How about you? Do you have any ideas for a new acronym for the states of Delaware, Montana, New Hampshire, and Oregon?

The Commission has a website where you can find additional information. It is https://arsstc.org/

If you need additional information about the economic nexus for Alaska or any other state, we have some great resources here. If you would like more information on any of the other services we offer you can reach out through the website or contact Ellie Moffat by email at emoffat@salestaxandmore.com.

See Michael J. Fleming speak more about this topic here.

By: Michael J. Fleming, CMI

This blog is intended for educational purposes and not as tax advice. Tax policies and procedures change frequently, so specific information, such as thresholds, rates, etc. included in this blog may have changed since it was originally published. Please request a consultation for more in-depth information.