In 1992, the Supreme Court ruled in Quill that if a company doesn’t have a physical presence in a state, then the company is not required to collect sales tax for sales to consumers within that state (this was an affirmation of a previous Supreme Court ruling). In those days, the issue was mail order catalogs (Internet, what’s that?).
Contrary to Quill, South Dakota enacted a law stating that a company is required to collect sales tax if sales for the year within SD exceed $100,000 or 200 transactions (it appears that SD and other states may have a prior year exception, since you wouldn’t know in February whether you will pass the threshold by the end of the year). This became the Wayfair case, which the Supreme Court ruled in favor of SD in a 5-4 decision.
Recently, the Justices in the majority acknowledged how the internet has changed things, and found that the prior ruling is no longer appropriate. One of the points of the Justices in the minority is that Congress should fix the issues with the prior ruling, not the Court.
For clients who sell remotely, what this means is there seems to be 3 options:
1) Go the conservative route, and start collecting sales tax on every transaction, based on where the buyer is located. This is burdensome, since there are ~12,000 jurisdictions that impose a sales tax. There are services that can help and we would be happy to refer you to a great source.
2) Start collecting sales tax in states that have enacted laws like South Dakota.
3) Wait and see – States are deciding what to do, and congress may act, so wait until the rules are clear to do anything.
One last side note – although states complained that their revenues were hurt by out of state retailers not collecting sales tax, the consumers should have been paying use tax on any purchases where sales tax wasn’t charged (we thought everyone paid their use tax?). Requiring the retailers to collect the tax certainly is a better scenario for the states.
Curious how this decision impacts you or your business?
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