In December 2017, the Mississippi Department of Revenue finalized a new sales and use tax regulation addressing remote sellers and establishing a $250,000 bright-line nexus standard. The department began that process in January 2017 by issuing a proposed regulation and refined it following a public hearing held in February. The regulation positioned the state to take advantage of any repeal of Quill’s physical presence test, but the department stated it would not enforce the new rule until the Supreme Court took that step. Now that Quill’s physical presence rule has been invalidated in Wayfair, taxpayers should expect the department to move forward with these remote-use tax collection efforts. The following information should help summarize Mississippi’s current rules and identify several important details and questions that have yet to be answered.

Statutory Background

Mississippi law [Section 27-67-4(2)(e)] has long required remote sellers to collect use tax if they have nexus with the state by “purposefully or systematically exploiting the consumer market provided by this state.” This could be accomplished “by any media-assisted, media-facilitated or media-solicited means, including, but not limited to, direct mail advertising, unsolicited distribution of catalogues, computer-assisted shopping, television, radio or other electronic media, or magazine or newspaper advertisements or other media.” This collection obligation is contained within the use tax code, not the sales tax code as may be the case in some other states.

Regulatory Bright-Line Rule

The final regulation specifies that sellers have a “substantial economic presence” if their sales into the state exceed $250,000 for the prior 12 months. The original proposed regulation would have based the sales threshold on the prior calendar year, so this change means sellers should track Mississippi transactions on a rolling, monthly basis if they are not otherwise registered. Unlike other states, Mississippi does not specify any minimum number of transactions to create nexus, and Department of Revenue officials have stated informally that a single transaction may meet the requirement when coupled with the other “market exploitation” criteria discussed below.

The regulation is somewhat unclear as to how the registration and collection trigger works for a seller that has not met the sales threshold but suddenly has a large transaction or series of transactions in one reporting period that puts it over the limit. Would that seller be required to register and collect beginning the following month or in the same month in which it crossed that threshold? Practical considerations suggest the collection obligation should begin with the next tax period, but the regulation is unclear on this point and could require an unregistered company to monitor and track its Mississippi sales in real time and perhaps begin collecting on transactions in the middle of a reporting period.

Both the original and final regulations were written in a manner that suggests the registration requirement could be an on-again, off-again determination that might allow a seller to de-register if it subsequently falls below the minimum sales threshold. Regardless, a registered seller must continue to collect and remit unless and until it formally revokes that registration.

For anyone considering simply not remitting tax if they fall back below the threshold, know that collecting sales or use tax without remitting it to the state is a very bad idea. In Mississippi, keeping those trust fund monies carries a 300 percent civil penalty plus potential criminal liability. The department recently issued a new regulation on that and other sales and use tax penalties, but suffice it to say they are very serious about enforcing that rule.

“Purposefully or Systematically” Exploiting the Mississippi Market

The final regulation provided a number of specific examples the Department of Revenue considered to meet the “purposefully or systematically” requirements:

  • Television or radio advertising on a Mississippi station
  • Telemarketing to Mississippi customers
  • Advertising on any type of billboard, wallscape, bus bench, interior and exterior of a bus, or other signage located in Mississippi
  • Advertising in Mississippi newspapers, magazines, or other print media
  • E-mails, texts, tweets, and any form of messaging directed to a Mississippi customer
  • Online banner, text, or pop-up advertising directed toward Mississippi customers
  • Advertising to Mississippi customers through applications (“apps”) or other electronic means on customers’ phones or other devices
  • Direct mail marketing to Mississippi customers

Several of these factors seem very straightforward and logical, but the e-commerce examples leave some practical questions unanswered. Most significant might be the question of what constitutes an activity “directed toward Mississippi customers” or the Mississippi market in particular. If a company advertises generally through social media or other electronic means, but not toward Mississippi customers in particular, will that meet the requirements? What about global e-mail blasts that happen to include Mississippi residents in the otherwise nongeographic-specific population? Does the typical third-party e-mail database provide the user with that level of location-specific information? How might a seller’s use of third-party marketers impact its nexus determination or liability?

These are all legitimate and practical questions that presumably must be answered over time, hopefully through additional guidance rather than on an ad hoc basis through audits and litigation. Many of these questions are likely to implicate broader personal jurisdictional concerns, testing both the state’s long-arm statute and due process limitations.


The effective date of the final regulation was December 1, 2017, and the rule states that it “applies to all transactions occurring on or after” that date. The rule was not conditioned on a repeal of Quill as some states’ statutes have provided, so the regulation would appear to have potential retroactive application back to the effective date. What is not clear is whether the 12-month testing period began on December 1, 2017, or the registration requirement began on that date based on the testing period reaching back to 2016. We expect the Department of Revenue to adopt the latter interpretation on the expectation that sellers possess sufficient historic sales data to make that determination.

The original proposed regulation provided that sellers who had not registered by a certain date would be assessed retroactively without the benefit of any statute of limitations, but those that voluntarily registered by a specific date would be subject to the rule prospectively only. This provision was excluded from the final rule, but we hope to receive additional guidance and perhaps a similar transition policy from the department soon.

Other Wayfair Benefits and Burdens Considerations

The Wayfair majority noted that remote sales and use tax collection laws still could be challenged under several other well-established constitutional tests, even after removing the physical presence nexus requirement. In examining the South Dakota law, the Supreme Court seemed comfortable that it contained several features that might protect that particular tax scheme from many of these challenges, and many states have begun conforming their laws to the South Dakota template. Mississippi’s regulation contains some—but not all—of South Dakota’s safeguards highlighted by the Court, so it is uncertain whether the courts will look as favorably on our scheme if it were challenged.

Both South Dakota’s and Mississippi’s laws contain minimum sales thresholds, but only South Dakota’s sets a minimum number of transactions to protect against a small number of large transactions creating nexus. By requiring a pattern of conduct directed toward the state, Mississippi’s additional nexus element that a seller have “purposefully and systematically” targeted the local market may or may not suffice for South Dakota’s more quantifiable minimum-transactions standard.

While South Dakota’s law applied purely prospectively, Mississippi’s regulation appears to apply retroactivity to transactions occurring on or after December 1, 2017. This limited retroactivity may be viewed more favorably than some other states that threaten full lookback, but the courts nonetheless may question any attempt to assess taxpayers for that interim period prior to the Wayfair ruling.

Unlike South Dakota, Mississippi is not a member of the Streamlined Sales and Use Tax Agreement, which could raise questions regarding uniformity with other states under a Commerce Clause benefits and burdens test. Many other states with decentralized, complex, and inconsistent local sales tax regimes likely have extensive exposure on this point (e.g., Louisiana), but Mississippi’s system is centrally administered by the Department of Revenue even for those few jurisdictions having limited local sales tax surcharges.

Income and Franchise Tax

For the past several years, the department has repeatedly but unsuccessfully attempted to pass income tax economic nexus and market sourcing legislation. In light of Wayfair and its liberalized nexus requirements, taxpayers should closely monitor the upcoming legislative session for additional developments in this area. As more remote sellers begin registering and collecting for sales and use taxes, we expect the state to renew its efforts to expand those filing obligations to income and franchise taxes. Depending on the form of such legislation, a new income or franchise tax nexus standard could extend well beyond remote sellers and pose risks even to upstream suppliers and vendors selling indirectly into Mississippi through common marketplace platforms.