The South Dakota versus Wayfair, Inc. Supreme Court ruling has had a significant impact on businesses all over the United States. The decision effectively overturned a longstanding physical presence rule (Quill Corp. v. North Dakota) for determining when a state can make remote sellers collect sales tax.
In short, sales tax makes up more than 40% of South Dakota’s revenue. The Supreme Court judged it to be unfair that e-commerce and remote sales should be able to avoid the sales tax that can generate as much as $14bn for states annually.
The ruling aims to level the playing field between non-collecting e-commerce and remote sellers and brick-and-mortar businesses.
Overturning Quill Corp. v. North Dakota
The decision of this 1992 ruling effectively prevented states from collecting any sales tax from retail purchases made over the Internet or other e-Commerce routes, unless the seller had a physical presence in the state. Due to the rapid expansion and increased prevalence of e-commerce and remote sellers, the decision to exempt these businesses from paying sales tax no longer made sense and worked to the detriment of states in which those businesses conduct sales.
“Because the physical presence of Quill is unsound and incorrect, Quill Corp. v. North Dakota, 504 U.S. 298, and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753, are overturned.” SOUTH DAKOTA VS. WAYFAIR, INC., ET AL. NO. 17-494. ARGUED APRIL 17, 2018 – DECIDED JUNE 21, 2018
Who Is Affected By The South Dakota v. Wayfair, Inc. Ruling
The recent decision directly affects several nationwide sellers. In particular, the decision affects remote sellers not currently registered with the state who meet threshold requirements. Those threshold requirements are:
- Annual sales over $100,000 or 200 transactions into South Dakota
The ruling does not affect any business already registered and collecting sales tax in South Dakota. Those businesses will be grandfathered in under the new ruling.
It is important to understand that this ruling applies to both online and offline sales. Anyone conducting cross-border sales with South Dakota is bound by the new ruling.
The ruling does not change what is or is not taxable, either. Rather, it is establishing that a physical presence is no longer the criteria by which the state decides who collects sales tax. Services, not just tangible goods and personal property, fall under the new rule. This ruling will apply to manufacturers and wholesalers who sell direct to consumers, too.
Exemption certificates will be available for those businesses selling business to business (B2B).
South Dakota v. Wayfair, Inc. Setting Precedent and Economic Nexus
To begin, understanding the definition of economic nexus will help businesses realize what this ruling does in terms of setting precedents for other states that choose to implement the same requirements.
Economic Nexus is a tax collection obligation imposed on sellers based on their level of economic activity within a state. Unlike physical presence, it is based entirely on sales revenue, transaction volume, or both.
These rules vary from state to state. With the recent ruling setting a threshold in South Dakota, it will likely lead other states to utilize the precedent and use the same threshold at a minimum.
What You Can Do
First, don’t panic. Contact your SALT CPA or attorney tax advisor and seek counsel on all nexus-related requirements and law. If you don’t have one, our partners at Avalara are among the best when it comes to tax compliance and they have an extensive directory of tax experts and SALT CPAs who can work with you to get things in order.
You can leverage Avalara Tax Advisory Services (TAS) to:
- Determine where you have nexus
- Get ongoing monitoring services to see when new nexus is established
- Register in new jurisdictions
- Navigate tasks related to establishing new nexus
For an easy reference, download this 2018 Mid-Year Sales Tax Changes whitepaper from Avalara. Inside, you’ll find many details surrounding recent tax changes that could directly affect your business as well as how you can address the best approach to resolve any identified issues.
Experts in all things revolving around tax compliance Avalara makes tax compliance easy and efficient, enabling you to do what you do best without constantly worrying about rate changes or filing deadlines.
About Encompass Solutions
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