Supreme Court’s Online Sales Tax Ruling on Wayfair

The U.S. Supreme Court plans to mark Tax Day by hearing oral arguments in a case that could dramatically change how, and where, many companies collect and remit sales tax.

On April 17, the court will hear arguments in the South Dakota v. Wayfair case. A ruling, which has the potential to affect how states can tax sales by e-commerce sellers and other out-of-state merchants, is expected by mid-June.

As my colleague Peggi Rockefeller noted in her January Tax Matters post, South Dakota in 2016 passed economic nexus legislation to require online merchants with no physical presence in the state to collect and remit sales taxes if:

• certain in-state sales reach more than $100,000 and/or
• more than 200 transactions are met.

South Dakota courts subsequently struck down the law because they were bound by precedent, including the Supreme Court’s 1992 ruling in Quill v. North Dakota.

Of course, retail sales business models have changed dramatically since 1992, thanks to the massive growth of online selling. Although many states have enacted legislation requiring the collection of sales and use tax on e-commerce transactions, presently, they cannot legally enforce these requirements. A reversal of Quill’s physical presence requirement would allow states to enforce these regulations.

This would significantly alter the sales and use tax nexus landscape. After all, many companies have physical nexus in only a few states. If the Supreme Court overturns Quill, companies could be required to collect and remit sales and use tax in up to 45 states. As a result, some companies would need to make substantive changes to current technology and processes.

Regardless of how the Wayfair decision plays out, companies should prepare by reviewing their current compliance practices and evaluating supporting technology to collect and remit sales tax before the Supreme Court rules in June.

We’ll keep you posted as the court’s potentially momentous sales and use tax decision unfolds.