By: Michael Cirangle
The U.S. Supreme Court handed down their decision in the much anticipated South Dakota v. Wayfair case. The court’s decision, in favor of South Dakota, has potentially wide-reaching implications for remote sellers and their sales tax obligations.
The case was centered on Wayfair’s obligation to collect and remit sales tax to South Dakota for internet sales made to customers within the state. Wayfair did not collect or remit sales tax for goods sold in South Dakota because they did not have a physical presence in the state. This was based on a previous case Quill Corp. V. North Dakota that was settled in 1992. The Quill case set the physical presence test that many out-of-state internet/remote sellers relied upon. However, since that time internet sales have increased significantly in their occurrence, complexity, and as a share of retail sales overall. The court’s decision in siding with South Dakota has reversed the long-standing position that without a physical presence in a state, companies were not required to collect and remit sales tax for that particular state.
While the extent of the case’s impact is not yet known, many states will be on the path to pass legislation that aligns with the court’s decision. Currently, 31 states have laws that tax internet sales and they will be looking to either enforce or modify them to ensure additional revenue is collected. The court’s decision was specific to South Dakota’s law but will become a framework for the future.
What steps should businesses take in light of this decision? Many of the large internet sellers like Amazon have already started to collect and remit sales tax in most states. Therefore, it is time to take a fresh look at your sales tax compliance, where you sell products too, and where you might have some exposure.
Ellin & Tucker stands ready to help identify your areas of concern and ways to navigate the ever-increasing complexities of the digital economy.
MICHAEL G. CIRANGLE, CPA, a Principal in the Tax Department of Ellin & Tucker, brings a wealth of national and international tax planning and compliance expertise spanning more than a decade. His extensive experience and inside knowledge of privately owned companies enable him to provide the highest level of practical and technical tax compliance and consultation. He can be reached at email@example.com.