Online Retailers Beware! Supreme Court Makes Decision on Sales Tax Case

Online Retailers Beware! Supreme Court Makes Decision on Sales Tax Case

The U.S. Supreme Court made their final decision on June 21, 2018 in the case of South Dakota v. Wayfair, Inc. with a five to four vote.  This decision overturns the “physical presence” test for determining a liability for collecting sales tax from the long established 1992 U.S Supreme Court case of Quill Corp. v. North Dakota.

The Wayfair decision will allow states to force most online retailers to collect and remit sales tax from out-of-state customers.   South Dakota’s law will be a clear model for all states to follow, a new standard for online sellers across the country.  That law imposes a sales tax requirement on retailers with 200 transactions or (not and) annual in-state sales exceeding $100,000.

Does an economic basis of sales in a state having only 200 transactions or only $100,000 in sales seem like a low threshold?   Shouldn’t Congress now act on requiring that the states remove the complexity of calculating the correct jurisdiction and sales tax rate, and require them to simplify the submitting of the sales tax collected to the various states? Does this decision place the individual states in a position to “harass” out-of-state retailers by sending them notices and conducting audits that are costly to a business?

State and Local Tax professionals across the country are commenting:

“It is a SAD SAD day. State and Local Taxes will never be the same.”

“In the Wayfair decision he [Justice Kennedy] refers to Quill as a “judicially created tax shelter for business.””

“The term ““tax avoidance” was also mentioned a few times [in the decision] …I guess for now, we can replace “physical presence” with “virtual presence.””

“I attended a FTA [Federation of Tax Administrators] conference earlier this month before the decision was rendered.  Many of the attending states were already gearing up as they all believed Quill would be overturned. Expect many states to mirror the South Dakota statute”

#Avalara [a sales tax solution provider] is going public. [They are] a true winner in this situation!!”

The case is South Dakota v. Wayfair, Inc., U.S., No. 17-494, 6/21/18.