Taxing Santa Claus – Wacky Tax Wednesday

Everyone knows Santa lives in the North Pole. Not everyone knows he pays sales tax on most items when he shops in town, or that he can avoid sales tax by staying home and shopping online. Word is he’s a bit of a recluse, so I have him for an Amazon Prime member.

But Santa’s tax-free days may be numbered. The City of North Pole, Alaska, is looking to tax online sales.

Currently, only businesses with a physical presence in North Pole are required to collect and remit tax — mail order and internet sales are exempt.

That could soon change.

States won the right to tax remote sales on June 21, 2018, when the Supreme Court of the United States ruled in favor of the state in South Dakota v. Wayfair, Inc. The Wayfair decision overruled the physical presence rule; while having a physical presence in a state still establishes a sales tax collection obligation, physical presence is no longer requisite.

In the year and a half since the decision, 43 of the 45 states with a general sales tax (plus Washington, D.C.) have adopted economic nexus: They now require sellers with no physical presence but a certain amount of sales and/or transactions in the state to register with the tax department and collect and remit sales tax.

The Alaska Municipal League (AML) is looking to do something similar at the local level. To that end, it’s created the Alaska Intergovernmental Remote Seller Sales Tax Agreement, which will “implement single-level, statewide administration of remote sales tax collection and remittance.” It will be overseen by the newly formed Alaska Remote Seller Sales Tax Commission.

To date, 15 cities and boroughs have signed the agreement. North Pole hasn’t, but North Pole Mayor Mike Welch did attend an AML workshop on remote sales tax in June. And during the December 2, 2019, North Pole City Council meeting, Welch said “an online sales tax is something we have to do.”

Still, he thinks North Pole won’t be taxing remote sales any time soon, likely not until late 2021. For now, most online sales remain tax free for residents of North Pole, Alaska, including Santa Claus. And I’m talking about the real Santa Claus — member of the North Pole City Council — as well as the mythical Saint Nick.

Other cities and boroughs in Alaska could require certain out-of-state sellers to collect and remit sales tax much sooner, as early as February or March 2020. Learn more about the local jurisdictions preparing to tax remote sales.