The U.S. Supreme Court has issued its ruling on the WayFair Sales Tax, overturning the sales-tax-only, physical-presence requirement set forth by previous rulings.
Before the ruling in Wayfair, a state could compel an out-of-state seller to collect sales tax if the seller had a “physical presence” in the state. This ruling allows states to levy taxes on sales of goods and services regardless of whether the seller has a physical presence in the state.
Impact of the Ruling
The impact of the decision is far-reaching, but due process requirements would still apply, as would other nexus tests of the Commerce Clause. The ruling does not give a state full discretion to subject any and all interstate commerce to state sales taxes–they are still required to limit their taxation to sellers and service providers where a substantial nexus exists with the state.
It is expected that states will immediately amend their sales tax statutes to allow for the tax. The next battle may well be to establish what amount of sales or other level of economic presence constitutes enough of a nexus with the state.
Substantial Nexus
Of particular note, the court did not determine what is considered substantial nexus; it only agreed with the rules in place in South Dakota. South Dakota’s rules require the value of goods delivered to be $100,000 and the number of transactions engaged to be 200 in order to be subject to tax.
What does this mean for you?
Retailers or service providers will likely have to implement or change internal systems to respond as new state statutes are established. In many cases, businesses may already have systems set up in areas where they have a physical presence and were collecting tax under the Quill standard. But now, many retailers and service providers will likely have to implement or change internal systems to respond as new state statues are established and they potentially have to collect sales tax in additional states.
If you have questions about the ruling and what it means for you, please contact us.