The U.S. Supreme Court ruled in favor of South Dakota in the South Dakota v. Wayfair case on June 21. This means that states and local governments now have the ability to require online retailers to collect and remit sales taxes.
This case challenged the “physical presence” nexus standard set forth in 1992 with the Quill v. North Dakota case. In this case, it was decided that when a company sells to a consumer in a state but does not have a physical presence in that state, the entity does not have nexus for the purposes of sales tax collection.
All of that has now changed with South Dakota successfully arguing that Quill is outdated due to the large increase in online shopping by consumers and the overall increase in the digital economy as a whole.
However, there are still details to be ironed out. Notably, states will have to have proper legislation in place to require tax collection by internet retailers and may need to look at revising current laws. In addition, Congress could get in the mix as well by implementing a nationwide law that would provide retailers relief from dealing with all the varying state tax laws.
So, what does this mean for business owners, especially those who have online sales? Any business with sales in multiple states need to be on the lookout for potential changes they may need to make in how they operate due to many states looking at how they approach nexus. Below are some things to consider:
- Multistate businesses need to develop and implement effective sales and use tax compliance systems and processes or scale existing systems.
- Multistate remote sellers should plan to develop a collection and reporting mechanism in most, if not all, jurisdictions within the next twelve months.
- With sales tax collection equaling large streams of revenue to state budgets, states are becoming more aggressive in enforcing compliance with sellers who do not have a physical presence in their states.
Now is the time to prepare for changes that are looming in the sales and use tax arena. Things you can do to get the process started include:
- Developing a list of where you do business and where you currently collect sales taxes
- Consider looking at a sales tax automation software
- Take a look at what products and services you sell. Exemptions from sales and use tax vary widely from state to state.
- Consider having a compliance review conducted for your current sales and use tax policies and procedures. There could be money you are leaving on the table due to overpaying sales tax.
The team at BerganKDV will be sending updates as the outcome of this case unfolds. In the meantime, if you have questions about your sales and use tax compliance, please contact us.
