Breaking: Sales tax case Supreme Court decision

Your Guide to State, Local, Federal, Estate + International Taxation

sales tax, online, Wayfair, Supreme CourtOn the morning of June 21, 2018, the United States Supreme Court handed down its decision in South Dakota v. Wayfair, Inc. In short, this decision remands the rulings in Quill and Bellas Hess, which required a taxpayer to have a physical presence (such as a storefront or factory) in a jurisdiction for them to charge sales tax.

Under old law, retailers without a physical presence in a state had no obligation to collect sales tax on sales into that jurisdiction. The states typically required their residents to pay use tax on items for which no sales tax was collected. The Supreme Court opinion mentioned that the impractical nature of this arrangement was costing various states anywhere between $8 and $33 billion annually in lost tax revenue. South Dakota enacted a law which said that out-of-state sellers (like Wayfair, who had no physical presence in South Dakota and was not paying sales tax there) with sales over $100,000 into the state, or engage in more than 200 separate transactions, would be treated as having physical presence, and therefore be liable for sales tax. The act specifically mentions that there would be no clawback, meaning that the law would only apply going forward and not retroactively.

The Court opinion mentioned that the specifics of the South Dakota law do not infringe upon the Commerce Clause of the Constitution and that states that wish to enact similar laws going forward should take note of those provisions. It will be interesting to see the shakeout of this ruling and how the various states will respond in order to collect their piece of the pie.

This is a paradigm shift from conventional ways of thinking as it relates to sales tax, and there are more questions than answers at this point. I encourage you to speak with your Henry+Horne professional if you have any questions regarding this matter.

Brock R. Yates, CPA, MT