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Impact of the Wayfair Decision

Background

On June 21, 2018, the Supreme Court issued an opinion on South Dakota v. Wayfair, Inc. The Court ruled in favor of South Dakota against Wayfair and other large online retailers and overruled the Quill ruling from 1992.

The case involved economic nexus law that imposes sales tax collection and remittance duties on out-of-state sellers meeting gross sales and transaction volume thresholds.  In overturning its prior precedents, the court determined that physical presence is not required to meet the substantial nexus requirement.  The court held that Wayfair had established substantial nexus through “extensive virtual presence”.

 

Issues and Impact

The decision opens the door for states to enact laws that require out-of-state sellers to register, collect and remit sales and use tax regardless of whether they have physical presence in the tax jurisdiction. States have been acting quickly to amend their sales tax statutes to reflect the ruling, thereby, beginning to levy sales and use tax on any interstate commerce that has substantial nexus.

For most states enacting legislation, substantial nexus is based entirely on sales revenue, transaction volume, or a combination of both (rather than the old standard requiring physical presence in a state).  Out-of-state companies may now be required to register, collect and remit taxes in numerous states where they had not been registered in the past.

 

Planning and Action Required

 A majority of states have amended their sales and use nexus rules to reflect the new substantial nexus standard. The states adopting the new substantial nexus standard have defined substantial nexus based on varying sales and transaction volume thresholds with some threshold triggering nexus at $100,000 in sales or 100 or more transactions in the state during the year.

If the company’s sales or transaction volumes exceed the new substantial thresholds in any of the states that amended their nexus requirements, the company may have a new sales and use tax filing requirement in that state. CLICK HERE for a chart indicting the states that have amended their sales and use nexus standards to align with the Supreme Court ruling.

If you have questions regarding the Wayfair decision and new sales tax collection and remittance requirements for your business, please feel free to contact us.