October 16, 2018

Online Sales Tax – Did You Pay?

Online Sales Tax – Did You Pay?

Supreme Court Decides Physical Presence Rule for Sales Tax Collection is “Unsound and Incorrect”

In South Dakota v. Wayfair, Inc., Et Al., the Supreme Court decided in favor of South Dakota’s law to require out-of-state sellers to collect and remit sales tax. In addition, the Court determined that the physical presence rule of Quill Corp. V. North Dakota is both unsound and incorrect. Until enacting its new legislation, South Dakota had been unable to require e-commerce companies such as Wayfair to collect and remit sales tax because such vendors did not have a physical presence in the state. South Dakota residents are required to remit use tax on purchases for which they did not pay sales tax, yet compliance rates are low. Consequently, South Dakota experienced a significant loss of tax revenue with the growth of e-commerce. Wayfair and other online retailers challenged South Dakota’s new law as unconstitutional. The Supreme Court sided with the state of South Dakota. While the South Dakota law applies only to vendors with at least $100,000 of annual sales or more than 200 separate transactions into the state, it is highly likely that many more state legislatures will begin to enact comparable laws to help fill their budgetary gaps.

All businesses with online sales can be impacted by this ruling. State sales tax policies should be reviewed and monitored for changes that will likely be forthcoming.

South Dakota v. Wayfair, Inc., Et Al., U.S. No. 17-494, 6/21/18

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