The U.S. Supreme Court recently agreed to hear a case that could change the way states tax online sales. The case, South Dakota v. Wayfair, Inc., challenges the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota. In Quill, the U.S. Supreme Court reaffirmed that states could only impose their taxes on those businesses with nexus with the state, and stated that only businesses with a physical presence in a state had nexus. In the years since, until now, the U.S. Supreme Court has not chosen to hear any of the cases presented on the nexus issue despite the rise of online sales and the actions of state governments. This blog post explores the nexus issue the U.S. Supreme Court will consider and its possible implications for taxpayers.
The South Dakota Bill
In 2016, South Dakota passed a law that stated that certain remote sellers with no physical presence in South Dakota were required to collect and remit South Dakota sales tax. The law applies an “economic nexus” standard, and states that remote sellers must collect and remit South Dakota sales tax if their sales into South Dakota exceed $100,000 per year or they make 200 or more sales into South Dakota per year. The South Dakota bill included a statement that the South Dakota legislature intended this bill as a vehicle for South Dakota to challenge Quill‘s physical presence nexus requirement.
The U.S. Supreme Court has now taken the opportunity to potentially clarify the tax obligations of remote sellers. As current federal guidance does not address the great change in technology since 1992, states have taken a somewhat fractured and haphazard approach, causing confusion for many sellers. The U.S. Supreme Court may choose to clarify this issue, though if it does, it may cause some remote sellers to become subject to tax in states where they have no physical presence. Sellers who make many remote sales into state where they have no physical presence may choose to seek the advice of a tax professional, such as a tax attorney, to clarify their potential future tax obligations.