This past year the U.S. Supreme Court issued its opinion in South Dakota v. Wayfair. This case has redefined sales and use tax nexus. The implications of this case will affect many online sellers and multistate businesses.
In June 2018, the court ruled that a state can require an out-of-state seller to collect sales or use tax on sales to customers in that state, even though the seller lacks an in-state physical presence. Under certain circumstances, an economic or virtual presence can create nexus within that state. This creates sales or use tax collection and remittance requirements in a state. Under the South Dakota law, a remote seller has sales tax nexus with South Dakota if the seller, in the current or previous calendar year:
- Had gross revenue from sales of taxable goods or services delivered into the state exceeding $100,000; or
- Sold taxable goods and services for delivery into the state in 200 or more separate transactions.
The Commerce Clause of the U.S. Constitution requires that a seller have “substantial nexus” with a state before the state can require the seller to collect and remit sales and use taxes. Until the South Dakota v. Wayfair case was decided, nexus depended on whether the seller had a physical presence in the state. Over time, the states have stretched the boundary of this standard by asserting “click through” nexus and affiliate nexus. Now “economic” nexus policies, like the South Dakota Law in Wayfair, stretch it further still with states asserting jurisdiction to impose sales and use tax collection responsibilities on companies that meet certain sales thresholds.
The Wayfair decision affects companies doing business in state and local tax-collecting jurisdictions across the country. This decision has opened the opportunity for all states to enact new law regarding their sales and use tax collection and remittance based on thresholds set by that state, and the states seem to be doing just that. Many states have either already passed, or are in the process of passing new state law that sets the thresholds for “economic” nexus within that state.
If you expect to have either more than $100,000 in sales, or more than 100 transactions in a state, please let us know. We would be more than happy to prepare a quick sales tax analysis for your business to see if your requirements to file have changed since the Wayfair decision.
If you would like to discuss how the decision may impact your business, please contact Kaitlin Pharr at 770-287-7800 x234 or email at firstname.lastname@example.org.
T: +1 770 287 7800