The Impact of SCOTUS Ruling on US Sales Tax

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On June 21, 2018, the Supreme Court of the United States (SCOTUS) ruled in favor of South Dakota in South Dakota v. Wayfair, Inc., a decision that will likely have a broad and lasting impact and it will take time for states to determine its impact.

In the meantime, as we review the decision in its entirety, I’m often asked what this ruling means for states and for remote sellers who sell into them. Here’s what we know: The Supreme Court has ruled the physical presence standard it upheld in Quill Corp. v. North Dakota (1992) is “unsound and incorrect.” That means states are allowed to tax businesses that don’t have a physical presence in the state.

However, before South Dakota can enforce its economic nexus law, the South Dakota Supreme Court has to approve it in a way that is “not inconsistent with” the SCOTUS ruling. As written, South Dakota SB 106 requires a remote seller to collect and remit sales tax if the seller meets either of the following criteria in the previous calendar year or the current calendar year:

  • “The seller's gross revenue from the sale of tangible personal property, any product transferred electronically, or services delivered into South Dakota exceeds one hundred thousand dollars; or
  • The seller sold tangible personal property, any product transferred electronically, or services for delivery into South Dakota in two hundred or more separate transactions.”

That represents a big departure from the physical presence standard upheld by the Supreme Court in Quill Corp. v. North Dakota in 1992. Put simply, a company that doesn’t even set foot in South Dakota could have a substantial connection to the state, otherwise known as nexus. What we don’t know are some of the broader implications of this decision that will no doubt come to light in the coming weeks and months.

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About Scott Peterson

Scott Peterson

Scott Peterson is vice president of US tax policy and government relations at Avalara. Contact him at [email protected].

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Jul 2nd 2018 17:42

I am wondering if anyone has considered that a business which starts of small not having $100K in sales, especially in a single state, at some point the sales grows over that amount. The company had not yet collected sales tax because it was not required could suddenly end up owing thousands in sales tax that was uncollected from the consumer

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