In the coming weeks, it is anticipated that the Supreme Court will rule on South Dakota v. Wayfair. This is the first time in more than two decades that the U.S. Supreme Court is revisiting the issue of state tax nexus. The current case challenges 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. In this instance, the company is known as a remote seller.
In the South Dakota v. Wayfair case, South Dakota is arguing that Quill is outdated due to the large increase in online shopping by consumers and the overall increase in the digital economy as a whole. On the other side of the argument, Wayfair argues that requiring companies to register in states where they do not have a physical presence is overly burdensome, especially for small business owners.
It is agreed that regardless of how the Supreme Court ultimately rules, 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.
