Back in 1992, when less than 2% of Americans had access to the Internet, the Supreme Court held that if a business didn’t have a physical presence in a state, that business didn’t need to collect and remit sales and use tax for that state (Quill Corp v. North Dakota).
In 2018, based on a survey from the Pew Research Center, 89% of Americans use the internet now. With the growth of e-commerce, many states claimed they were losing sales tax revenue. South Dakota enacted a law that required certain out-of-state sellers to pay sales taxes in their state, if those sellers exceeded a certain threshold. South Dakota then filed suit in state court to grant that their law was valid and applicable to certain online sellers. This suit was taken all the way to the US Supreme Court.
As a result of this case, on June 21, 2018, the US Supreme court issued a landmark decision (Wayfair v. South Dakota) allowing that a state can require an out-of-state seller to collect sales and use tax on sales within that state, without the seller having a physical presence (i.e. it doesn’t matter if your business is physically present in that state).
Here is how the states are conforming:
“Economic nexus” is sales to customers located within the state
Could your business be impacted?
This decision is expected to impact many businesses that sell online or in multiple states.
South Dakota’s law requires businesses that exceed $100,000 in sales within the state or have 200 or more separate transactions within the state to pay sales tax. Many other states are expected to imitate South Dakota and enact a similar law for out-of-state sales.
Is your accounting system able to provide the necessary information?
What should your business do? Here’s some options:
- Wait and see – Many states are still working through the details on how this will impact them. There should be pending guidance issued in the near future.
- Register your business and pay state sales tax in those states that have already enacted sales tax laws – Authorities have said it’s doubtful the tax will be imposed retroactively, so your business could register and pay in these states and wait to see what other states do. There is no guarantee a state won’t attempt to assess sales tax retroactively.
- Volunteer to register and pay sales tax everywhere – Bite the bullet and register in all states to ensure compliance once further state guidance is issued.
Contact us with questions or help reviewing your options.
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