Supreme Court opens door for States to Collect Sales Tax from Out of State Sellers

Quill is Dead Long live Wayfair.

In an 5-4 split decision on 06/21/2018 the Supreme Court rocked the on-line retail world by ruling in the case South Dakota v. Wayfair Inc. in favor of South Dakota to allow its new law to stand.  The new law requires out of state retailers to collect and pay sales tax to that State of South Dakota.

This is the beginning of the end of the tax loophole for tax free purchases on-line.

Although some very small retailers would be exempt from the South Dakota law if they don’t meet the minimum quantity of sales, all 45 states with a sales tax will have to take a stand on this matter which creates a compliance burden for small businesses just to figure out if they even have to file a sales tax return.

The upstart to this law is that it levels the playing field with brick and mortar businesses and the biggest online retailers such as amazon, overstock and wayfair who will all be required to comply just because of their massive size.  In anticipation of coming change, as of last year Amazon started collecting sales tax in all 45 states that have a sales tax.

There are a handful of states besides South Dakota who already have laws on the books such as Massachusetts, Ohio, Colorado, and Connecticut, which use different legal techniques to attempt to collect sales tax.  To complicate matters even more different states have different ways to determine how sales tax is calculated.  Some determine the tax rate based on the place where the sale originated (an online seller’s warehouse), yet most are based on where the material was delivered.  So, for example, can Arizona, which is an origin based sales tax state, require an out of state seller to collect and pay Arizona sales tax when Arizona law says that the tax should be calculated at the rate where the sale originated?  How can Arizona law do that if the place where the sale originated is not under the jurisdiction of the Arizona Revised Statutes?

While many things are still unclear.  What is clear is that there will be a period of time where the states scramble around to try to figure out how to best capitalize in this change in precedent so stay tuned.

If you are unsure about what you need to do with respect to your sales tax, or would like to find a way to streamline your filing don’t hesitate to contact us to set up a free initial consultation.

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