Retailers will need to evaluate their current sales tax practices following a ruling by the U.S. Supreme Court. In a decision handed down Thursday in South Dakota v. Wayfair, Inc., the Court ruled in favor of South Dakota stating it can impose sales tax collection requirements even if the business does not have a physical presence in the state. This decision reverses a 1992 ruling in Quill Corp. v. North Dakota, which required sellers to collect sales tax only if they had property or employees in the state.
It should be noted that the South Dakota Act applies only to sellers who deliver more than $100,000 of goods or services into their State or engage in 200 or more separate transactions for the delivery of goods and services into the State on an annual basis. The Court determined that because the Act provided the safe harbor for those who transact only limited business in the State it did not violate the Commerce Clause since it did not put undue burdens upon interstate commerce.
Other states have similar economic presence regulations in place and will be making determinations on whether their current laws would also be upheld in court. If not, they will be looking at South Dakota for guidance on how to modify existing laws to yield similar results.
For years, consumers have been held responsible for reporting and remitting use tax on purchases where sales tax was not collected. This shifts the burden to the seller to collect the sales tax when the transaction is consummated.
Retailers will need to consider which states they are shipping and whether their compliance requirements are affected given this decision. Furthermore, they should continue to monitor what other states are doing given this ruling.
For more details on the ruling or how the ruling impacts your business, please contact your MarksNelson advisor at 816-743-7700.