By Terry Barrett, CPA | Tax Senior Manager | State and Local Tax Team
States May Require Online Sales Tax Collection
Today, the United States Supreme Court ruled in favor of the State of South Dakota in a 5-4 decision in South Dakota v. Wayfair, Inc. The Court’s decision allows states to require out-of-state or remote sellers (Internet, mail-order or other nonresident sellers) to collect sales tax on sales to in-state residents. Previously, the states had been limited by earlier Court decisions stating a seller must have a physical presence in the state in order to be required to collect the tax. The states have complained for years that the physical presence requirements were not reflective of current retail business practices, depriving the states of significant tax revenues and creating uneven playing fields with in-state brick and mortar stores.
At issue in the case was whether South Dakota’s law of requiring out of state sellers with sales of $100,000 or more or 200 or more separate transactions for the delivery of goods or services to South Dakota residents was valid. The Court effectively said with the thresholds included in the legislation, the state was directing the tax collection requirements at businesses that were maintaining an “expansive virtual presence” in the state. However, whether other states will follow suit with similar thresholds or seek collection of the tax on a single sale into the state is unknown at this time. There is also uncertainty regarding the potential retroactivity of the Court’s decision.
Businesses selling via the Internet, mail-order, phone orders, or otherwise to customers in states where they do not have a physical office, or other physical presence should take stock of where the sales are. They may have sales/use tax collection requirements in the very near future.
Keiter will be providing a more detailed analysis of the potential impact of the Court’s decision in the coming days. In addition, we are closely monitoring states’ responses to the Court’s decision and will be providing updates on this critical issue.
Additional Sales and Use Tax Resources:
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.