The Supreme Court ruling yesterday overturned the nearly two decades old ruling of Quill Corp v North Dakota that had governed how states could collect sales tax on interstate sales. The Quill decision previously required retailers have a physical presence (i.e. warehouse, distribution center, brick-and-mortar store, employees) in a state before they were required to collect sales tax in that state. South Dakota v. Wayfair Inc. means now sales alone are enough to create sales tax nexus in a state.
The states have long said those purchasing goods from out-of-state sellers should pay use tax if the retailer didn’t collect sales tax. That hasn’t been happening. As internet sales continue to expand and brick-and-mortar stores continue to close, the states are left with empty wallets from those missing sales tax dollars. Estimates put the lost sales tax revenue for the state of Kansas around $200 million annually.
This Supreme Court ruling suggests technological advancements contributed to overturning the 1992 QuiII decision. Justice Kennedy cited a staggering statistic, that “[i]n 1992, mail-order sales in the United States totaled $180 billion. Last year, e-commerce retail sales alone were estimated at $453.5 billion.”
Most larger retailers already collect sales tax in multiple states. As each state sets their own rules for what is a taxable sale and what is nontaxable, smaller businesses may feel an administrative burden collecting and remitting the correct sales tax under the new ruling.
States are attempting to make following the rules small business friendly. Massachusetts implemented regulations last fall making online sellers that do more than $500,000 in sales or at least 100 transactions in their state collect and remit state sales tax. South Dakota’s law, that initiated this Supreme Court case, requires any entity with a minimum of $100,000 in annual sales or 200 individual transaction within the state to collect sales tax.
Now that the Supreme Court has shown their support for South Dakota’s interstate sales tax law, some are estimating the state of South Dakota will move forward with collecting sales tax in as little as 30 to 90 days. Other states will likely start adjusting their laws under the new guideline. Those living in the five states without sales tax --Alaska, Delaware, Montana, New Hampshire, and Oregon – will continue to not be subject to sales tax, unless their state laws change. As we move forward, we’re here to help guide businesses through the changes.