Written by Jack Schmoll, CPA
As I am sure many of you saw SCOTUS ruled on South Dakota v. Wayfair yesterday. The court found for South Dakota and overturned Quill v. North Dakota (1992). Quill had held that a business had to have some type of physical presence in a state before a state could assert sales tax nexus. In Wayfair, the court states that the ruling in Quill and a prior case, National Bellas Hess v Illinois, were in error. It was a surprisingly direct rebuke of the Quill court, especially considering that three current justices were also on the Quill court.
This is a fundamental change in the application of sales tax nexus and will eventually lead to the vast majority of products sold over the internet being taxed. However, it is important to note, this ruling has greater reach than just internet merchants and will impact anyone selling taxable goods or services across state lines.
South Dakota’s statute asserts nexus if sales exceed $100,000 or 200 transactions. The court stated that it approved South Dakota’s law, in part, because the thresholds were high enough to protect small businesses (debatable), it will be applied prospectively, and South Dakota is a member of the Streamlined Sales Tax Project. However, the court did not go so far as to require these things, so the state still have great latitude.
I expect we will see a great deal of activity as various states make their statutes consistent with the court’s ruling so nexus can be asserted. For states that already have similar statutes in place, it is unclear whether they will set a future date for enforcement or take the position that the statute has been enforceable since it was put in place. I am optimistic that states will not take the retroactive approach, but we will have to wait and see.
While the court struck down Quill, it did remand the case to the South Dakota Supreme Court where Wayfair, et al, could raise additional constitutional arguments that SCOTUS could eventually address. This would probably result in tweaking the requirements as opposed to any drastic shift in SCOTUS’s opinion.
Over the coming months, advisors and taxpayers will need to pay particularly close attention to which states are adopting these types of nexus rules and when they will become effective. This will be a burdensome process requiring taxpayers to register, collect tax, and file returns in a multitude of states. Further, sellers will need to become familiar with the taxability of their products in each state and possibly begin collecting and tracking exemption certificates in many states.
Yesterday was just the beginning of this process.
– NCACPA will be offering a webinar entitled “Sales Tax Nexus: Wayfair and Beyond,” developed and presented by Jack Schmoll, CPA. The dates are July 10 & 31, and registration will be available early next week.
– Journal of Accountancy: Supreme Court Overturns Quill’s Physical Presence Requirement