Summer 2018 Comes In With A Sales Tax Heat Wave: U.S. Supreme Court’s Decision in Wayfair Overturns Quill’s Physical Presence Requirement

Earlier today we were welcomed by the arrival of Summer Solstice and the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. et al {“Wayfair”}, that overturned the physical presence requirement established by the Quill Corp. v. North Dakota decision. At issue was the South Dakota legislation that required out-of-state sellers to collect and remit sales tax “as if the seller had physical presence in the State”; i.e. commonly referred to as “economic nexus”. The South Dakota legislation in Wayfair covers those out-of-state sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transac­tions for the delivery of goods or services into the State. It should be noted that the South Dakota thresholds are significantly low so as to require even relatively small out-of-state sellers to register as vendors in South Dakota.

Wayfair’s Long Reach Goes Beyond South Dakota

In anticipation of a ruling by the U.S. Supreme Court on South Dakota’s “economic nexus” provision, numerous states began adopting “economic nexus” provisions for sale tax as early as 2016. It is equally important to multistate businesses that have limited their physical presence to one or few states to consider the number of states that have adopted similar remote seller “economic nexus” provisions with respect to sales tax.

The Sales Tax Institute’s Remote Seller Nexus Chart as of June 11, 2018 identifies the following states that have adopted “economic nexus” sales tax nexus provisions:

Alabama

Georgia

Hawaii

Illinois

Indiana

Iowa

Kentucky

Maine

Massachusetts

Mississippi

North Dakota

Ohio

Pennsylvania

Rhode Island

Tennessee

Vermont

Washington

Wyoming

Therefore, in addition to South Dakota, multistate businesses should immediately review the aforementioned states’ specific “economic nexus” provisions in relation to their sales and number of separate transactions in each of the states listed above.

More importantly it appears that several of the aforementioned states have effective dates for their economic nexus provisions that are already in effect; i.e. Indiana, Maine, Massachusetts, Mississippi, Ohio and Wyoming. The analysis with respect to these states should receive utmost priority.

At this time there is limited state specific guidance as to the procedural or administrative application of some the nuances of the economic nexus provisions in question; most significantly how will states with economic nexus provisions determine their criteria’s requirement of “on an annual basis”. To date, Illinois’ economic nexus provision provides a comprehensive and well thought out determination of this most critical requirement.

What’s Next?

The decision in Wayfair just handed the states a powerful tool to require out-of-state sellers to register as vendors in numerous states. The Wayfair case will require many businesses to dramatically reevaluate how they approach sales tax.  The most immediate challenge is the expanded compliance burden of collecting sales tax and filing in jurisdictions where it was not previously required.  Looking to the future, multistate businesses will likely face pressures to change where and how they do business in light of the new sales tax rules.  Wayfair is the most significant change to the state sales tax landscape since Quill over 20 years ago, and it will take time to work out all of the consequences.

Multistate business should immediately review their sales and transactions with customers in the affected states listed above. Equally important, as the Wayfair decision provides the blueprint for Constitutionally acceptable “economic nexus” provisions, multistate businesses and their tax advisers should expect as well as be prepared for the ramifications arising from numerous states adopting similar “economic nexus” provisions. The Summer of 2018 Sales Tax Heat Wave has officially begun!

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