Major SC Decision Allows States to Require Online Retailers to Collect Sales Tax!

The US Supreme Court has ruled in South Dakota v Wayfair, Inc. that retailers can choose to charge tax on online purchases, regardless of whether the consumers have a physical presence in the same state, overturning 26 years of precedent barring states from taxing out-of-state sellers. This is sure to be regarded as a landmark decision for state and local taxation and seen as a heavy blow to online retailers throughout the United States, as well as foreign based internet retailers.

The decision was a very close 5-4 decision which overturned a 1992 Supreme Court ruling in Quill, that prevented states from imposing sales taxes on catalog and mail-order companies that did not have a physical presence in the state (physical presence included an office, warehouse, employees et…). That ruling came just prior to the internet boom, and was the basis for online retailers avoiding the collection of sales taxes on purchases made on their websites.

"Because the physical presence rule of Quill is unsound and incorrect, Quill Corp. v. North Dakota ... and National Bellas Hess, Inc. v. Department of Revenue of Ill., are over-ruled," Justice Kennedy wrote.
 

 
Although the case addresses the South Dakota law requiring online retailer Wayfair to collect sales tax regardless of whether it has a physical presence there, the Supreme Court ruling has significant implications nationwide.

This Decision Will Impact Every Company

That Makes Sells Over the Internet

Currently, over thirty state have some sort of rule that taxes internet sellers without physical presence. Some of those statutes were to take affect when the Supreme Court abrogated the requirement that a vendor have physical presence in order to be subject to sales taxation. That day has come and companies must now scramble to come into compliance with state sales taxation.

A report from the Government Accountability Office in December 2017 found that states are losing up to $13 billion because they could not compel remote sellers, especially internet sellers, to collect and remit tax.

 

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