Bloomberg Tax
Aug. 21, 2020, 8:01 AM

INSIGHT: Home Rule Jurisdictions Make Their Move

Jasmine Gandhi
Jasmine Gandhi
Allen Storm
Allen Storm
Harley Duncan
Harley Duncan

The U.S. Supreme Court decision South Dakota v. Wayfair overturned the long-standing rule requiring that an out-of-state seller have a physical presence in a state before that state could require a seller to collect sales and use tax on sales delivered into the state.

The court held that an economic presence was sufficient, provided that state tax collection would not impose an undue burden on the seller. While the court was not tasked with determining whether South Dakota’s economic nexus statute created an undue burden, it implied strongly that it would not because it prohibited retroactive application of the ruling and had a minimum threshold of economic activity before a collection obligation was imposed. In addition, the court noted that South Dakota is a member of the Streamlined Sales and Use Tax Agreement (SSUTA), which requires state-level administration of local taxes, certain uniform definitions, and other simplifications.

In the wake of Wayfair, all but two states have adopted economic nexus requirements. Each state prohibits retroactive application, and each state, save one, requires a certain level of economic activity before collection is required. While only about half of the states are members of the SSUTA, most of those that are not do have state-level administration of local taxes and a reasonably uniform state and local sales tax base.

In musing about whether an undue burden claim might be made against some state regime, most observers have focused on the four home rule jurisdictions—Alabama, Alaska, Colorado, and Louisiana—in which many individual local governments collect and administer their own local sales and use taxes, separate and apart from the state tax. As a general matter, home rule jurisdictions make tax compliance more burdensome because tax bases often differ between the state and local tax, separate returns are required for each jurisdiction, and each jurisdiction may audit a seller.

Alabama settled on its approach to remote sellers and home rule jurisdictions shortly after the decision in Wayfair. Recently, Alaska, Colorado, and Louisiana have each taken steps to require remote sellers to collect tax on sales into home rule jurisdictions. As of this writing, certain remote sellers have a collection obligation in at least some local jurisdictions in each of the home rule states. This article reviews the approaches in Alabama, Alaska, Colorado, and Louisiana with an emphasis on how the tax on remote sellers is collected and administered.


Alabama has over 300 jurisdictions that locally administer their sales and use tax. Tax rates in these local jurisdictions vary between 0.5% to 5%. State law requires the tax base and administrative provisions of local taxes to follow the state sales tax. Alabama Department of Revenue administrative rules provide that a seller with an obligation to collect Alabama state tax is required to collect Alabama local tax only if it has a physical presence in the local jurisdiction into which a sale is made or delivered.

The Alabama Department of Revenue in 2016 adopted an economic nexus regulation providing that sellers making retail sales of tangible personal property in excess of $250,000 per year in the state were required to register and collect Alabama sales and use tax, regardless of whether they had physical presence. Following Wayfair, the department applied the rule prospectively only from Oct. 1, 2018.

In 2015, Alabama adopted the Simplified Sellers Use Tax (SSUT) to encourage voluntary collection by sellers not required under the law at the time to collect sales and use tax. Post-Wayfair, the department issued guidance noting that remote sellers with no physical presence in the state should register and begin collecting under the SSUT if they exceeded the $250,000 in sales threshold, effective Oct. 1, 2018. In addition, the legislature passed a measure in 2018 requiring marketplace facilitators exceeding the threshold to register and collect under the SSUT, effective Jan. 1, 2019, or they would be required to adhere to various notice and reporting requirements on sales made into the state.

The SSUT is a special tax regime applied only to remote sellers and marketplace facilitators under which the seller is required to collect tax at the rate of 8% on all sales into Alabama regardless of location to which the sale is delivered. SSUT sellers file a single monthly tax return and remittance with the department, and the department allocates 50% of SSUT remittances among local governments on a population basis. The seller is not required to track or report its sales or collections by jurisdiction. Collection of the SSUT relieves the seller and the purchaser from any additional state or local sales or use tax on the transaction. If the 8% SSUT is greater than the combined state and local sales tax in a destination jurisdiction, the purchaser may seek a refund for the difference between the SSUT rate and the destination rate. SSUT participants are subject to audit only by the department.


Alaska has no state-level sales tax, but over 100 cities and boroughs impose their own locally administered sales tax. Local sales tax rates range from 1% to 7%. The tax base and exemptions established by each locality can vary across jurisdictions, and the tax rate in select jurisdictions increases in the summer months to capture seasonal tourism activity.

Following Wayfair, local governments, working through the Alaska Municipal League, created the Alaska Intergovernmental Remote Seller Sales Tax Agreement, which was finalized in October 2019. The Agreement is intended to create a path for municipalities to impose a local tax collection obligation on remote sellers and marketplace facilitators selling into Alaska. The Alaska Remote Sellers Sales Tax Commission, created by the agreement, serves as the central organization responsible for registering sellers, receiving returns and remittances, distributing funds to participating localities, and auditing remote sellers and marketplaces.

The Alaska commission has adopted the Remote Seller Sales Tax Code which contains administrative provisions governing matters such as registration, returns, remittances, audits, and appeals. Importantly, the code does not replace individual local ordinances that govern the tax base or rates. Once a local jurisdiction becomes a signatory to the Alaska agreement, it must adopt the uniform code and incorporate it into its local sales tax ordinances within 120 days.

The Alaska code provides that a remote seller or marketplace facilitator must register with the commission if, in the previous calendar year, it meets an economic nexus threshold of $100,000 in gross sales of products or services or 200 or more separate transactions in the state. The remote seller and marketplace facilitator must then begin collecting and remitting the tax on sales into each jurisdiction that adopts the code within 30 days of the ordinance becoming effective in the jurisdiction. The obligation to collect and remit also applies to an Alaska-based seller if it meets the economic nexus threshold and makes delivery sales into a participating local jurisdiction in which it does not have a physical presence.

The Alaska commission currently has 39 member jurisdictions, 30 of which have adopted the code and currently have active collection requirements for remote sellers and marketplace facilitators. The commission has contracted with private companies to develop and operate the registration, return, and remittance systems and to provide an address database for determining local tax rates; sellers are held harmless if they use the system and the tax rate is in error. While certain tax administration functions have been centralized, remote sellers must still manage varying tax bases, exemptions, and rates across jurisdictions. Moreover, the obligation to collect does not rest on the level of activity in a particular jurisdiction, but rather a seller’s statewide sales activity.


Colorado has two initiatives underway to allow home rule jurisdictions to avail themselves of the benefits of Wayfair—a uniform economic nexus standard at the city level and a centralized state-sponsored system for filing local sales tax returns. Colorado has 71 home rule cities. Each jurisdiction administers its own tax and establishes its own tax base and rate. While Colorado has adopted an economic nexus threshold for state tax administration purposes, a seller is required to collect tax on sales delivered into a home rule jurisdiction only if it has a physical presence in the jurisdiction.

The Colorado Municipal League has developed a model ordinance designed to create a uniform economic nexus threshold for home rule cites. If adopted by a city, the ordinance establishes an economic nexus threshold that mirrors the state economic nexus statute (i.e., sellers with more than $100,000 in retail sales in a 12-month period) in the state (not within the city itself). The ordinance would also define a marketplace facilitator and require sellers and marketplaces meeting the threshold to collect tax on sales into the jurisdiction. If adopted, collection obligations for remote sellers and marketplace facilitators take effect on the first day of the month that is at least 30 days after the adoption of the ordinance by home rule cities. As of this writing, five home rule cities have adopted the model ordinance with effective dates running from July 1 – Sept. 1, 2020.

The Municipal League, citing concerns of a possible undue burden challenge under the Commerce Clause, has strongly urged municipalities not to adopt the economic nexus provisions of the ordinance unless they also intend to participate in the state-operated tax collection portal, termed the Sales and Use Tax System (SUTS). The system allows sellers and marketplaces to file sales tax returns and remittances for all participating jurisdictions through a single portal. A seller can also access tax rates and certain exemption information for participating jurisdictions. As of this writing, there are about 16 home rule jurisdictions participating in SUTS, including the five that have adopted the model economic nexus and marketplace ordinance. Another five home rule cities are in the on-boarding process for SUTS.


There are a large number of Louisiana local governments (parishes, cities, and school districts) that impose a local sales tax; each establishes its own tax base and sets its own tax rate within the confines of state law.All local taxes within a parish are collected by a single central entity in each parish. Prior to Wayfair, a seller was required to collect and remit tax in a parish only if it had a physical presence within the taxing jurisdiction.

In 2017, Louisiana established the Louisiana Sales and Use Tax Commission for Remote Sellers to be the sole entity authorized to collect and administer local taxes with respect to remote sellers. The following year, Louisiana adopted an economic nexus threshold requiring a dealer to collect and remit state and local sales and use tax on sales in the state if it had $100,000 or more in gross revenue or 200 or more separate transactions from the sale of tangible personal property delivered into Louisiana, products transferred electronically in Louisiana, or services used or consumed in Louisiana. Implementation of the nexus standard was delayed to allow the commission to establish the infrastructure necessary to fulfill its duties. Effective July 1, 2020, remote sellers must register with the commission within 30 days of meeting the economic nexus thresholds and must begin collecting and remitting tax within 60 days of crossing the threshold.

Exceeding the economic nexus thresholds on a statewide basis establishes a requirement for remote sellers and in-state sellers to collect tax on sales delivered into in all parishes. A remote seller with no physical presence in Louisiana must collect and remit tax on all sales made into all taxing jurisdictions at the applicable rate and base in effect in the jurisdiction of delivery. Returns and remittances by remote sellers will be filed with the Louisiana commission, and the commission will be responsible for auditing remote sellers on behalf of the local jurisdictions.

Online sellers exceeding the threshold, but with a physical presence in Louisiana, will also be required to collect and remit the applicable local tax on sales into all parishes. Such sellers, however, will be required to register, file, and remit tax to the collector in each parish into which goods are delivered. Based on the Louisiana commission’s FAQs, it appears that an online seller would be considered to have a physical presence in Louisiana if it has an affiliate or a representative in the state that assists the online seller in establishing and maintaining a market in the state. Such physical presence in the state will also subject the seller to each parish’s audit authority.

A marketplace facilitator with no physical presence in Louisiana must collect and remit on all sales—both facilitated sales and direct sales—made into all taxing jurisdictions at the applicable rate and base in effect in the jurisdiction of delivery. Returns and remittances will be filed with the Louisiana commission, and the commission will be responsible for auditing marketplaces on behalf of the local jurisdictions. If a marketplace facilitator is considered to have a physical presence in the state (e.g., through an affiliate or representative), it will be required to remit the local tax to each parish individually for its direct sales only. The tax on facilitated sales will continue to be administered by the commission. In this case, direct sales would be subject to audit by the local tax authority and not the commission.

Thus, despite having a single point of filing and administration for sellers with no physical presence in the state, the state and local sales and use tax collection obligation remains complex in Louisiana. Any physical presence, even by an affiliate, in the state may result in a marketplace facilitator or an online seller having a collection and remittance obligation, as well as potential audit exposure, in each parish to which its sales are destined. A marketplace facilitator with an in-state presence will have different obligations depending on whether it is a direct sale or a facilitated sale.


Each of the four home rule states has begun requiring remote sellers and marketplace facilitators to collect tax on sales into locally administered jurisdictions under certain conditions. They have each taken different directions and achieved varying results in reducing the potential compliance burdens facing remote sellers. Alabama has achieved the most simplification with its SSUT in which a seller is required to collect at a single rate, remit tax only to the state with no sourcing by jurisdiction, and be subject to audit only by the state taxing authority. The other three states have each adopted a single portal for the filing of all local returns and remittances by remote sellers with no physical presence in the jurisdiction. Nonetheless, the tax base can differ among localities, tax must be collected at the rate in the destination location.

While remote sellers in Alaska and Louisiana will be subject to audit by a single entity, that is not the case in Colorado where remote sellers will be subject to audit by individual localities. Moreover, in Louisiana, many online sellers that have one or more affiliated entities in the state are likely to be required to register, file, and remit in each parish and to be subject to the parish audit authority.

A final matter to consider is that in Alaska, Colorado, and Louisiana whether a seller meets the economic nexus threshold depends on total sales activity on a statewide basis which may have no relationship to the level of activity in the locality. Moreover, in Alaska and Colorado, the nexus threshold is being adopted by local ordinance only, and not by state law as in Louisiana and Alabama.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Jasmine Gandhi and Allen Storm are associates in and Harley Duncan is a managing director in charge of the State and Local Tax group of KPMG LLP’s Washington National Tax practice.

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This article represents the views of the authors only, and does not necessarily represent the views or professional advice of KPMG LLP.