What do you mean, the Supreme Court’s decision on Wayfair could impact my business? I don’t need furniture.
On June 21, 2018, the United States Supreme Court issued its opinion in a case called South Dakota v. Wayfair, Inc., et al. The decision is a sea change for businesses that sell goods through the internet, including those with a brick and mortar establishment.
Prior to the Court’s decision in Wayfair, someone selling goods through the internet could not be subject to a state’s sales tax laws unless the seller had “physical presence.” While there are ample definitions of “physical presence” among the states, the one constant was that having sales into a state was not enough to subject a seller to the state’s sales tax laws. This is what the Court changed.
The Court held that South Dakota’s “economic nexus” standard passed constitutional muster, and that the previously ordained “physical presence” standard was unsound and unworkable. South Dakota’s law requires sellers with 200 or more transactions or $100,000 or more in sales to collect and remit South Dakota’s sales tax. The Court referred to this threshold as a small business safe harbor. Also, the Court found notable that South Dakota’s law only applied on a going-forward basis, and that South Dakota had simplified its sales tax laws as a member of the Streamline Sales Tax Agreement.
So, why is Wayfair important? Fifteen states already have laws similar to South Dakota’s. This includes Kentucky. Many more states are expected to adopt South Dakota-type laws. If you are selling products in another state through the internet, you may be required to collect and remit that state’s sales tax. Once collection responsibility is imposed, a myriad of questions arise: What is subject to tax? Do local governments charge sales tax in addition to the state? What are the sales tax rates?
For more information, contact your Dean Dorton advisor or:
Mike Harbold, mharbold@deandorton.com
Erica Horn, ehorn@deandorton.com