June 22, 2018
Most business owners don’t spend much time thinking about taxes. The time, energy and resources needed to run their business, drive growth and enhance profitability usually monopolize their mind. However, a June 21 Supreme Court ruling will have a significant impact on how and when companies are required to collect and remit sales tax on transactions.
In the case of South Dakota v Wayfair, the Supreme Court ruled in favor of South Dakota affirming states’ rights to impose sales tax collection requirements on companies with no physical presence. This is a notable change from previous case law that held a state cannot require a company to collect sales tax if they have no physical presence, such as an office, warehouse or retail location, in the state. To help you understand this ruling, what it means and how it may impact you, Wilson Lewis has provided a summary of key points below.
What is South Dakota v Wayfair?
This ruling is the World Cup, World Series or Super Bowl, minus all the commercials, for the tax and accounting profession. In recent years, states have been modifying their tax laws to require remote sellers without a physical presence to collect and remit sales tax on qualifying transactions (known as economic nexus) once certain benchmarks are satisfied. South Dakota passed a law in 2016 requiring out-of-state retailers to collect sales tax on all transactions conducted within the state if they exceeded $100,000 in sales or 200 total transactions. While the Supreme Court of South Dakota ruled the law unconstitutional, the U.S. Supreme Court agreed to hear the case. The key issue is whether states have the right to require out of state retailers, such as Wayfair, Inc., to collect sales tax when they have no physical presence in the state. A former Supreme Court ruling, Quill Corp v North Dakota, established that companies without a physical presence in a state cannot be required to collect sales or use tax on transactions.
The Ruling
The Supreme Court ruled in favor of South Dakota that states do have the right to require retailers with an expansive presence, regardless of whether a physical presence exists, to collect sales and use tax. Justice Anthony Kennedy wrote in his opinion that there are sufficient safeguards in the South Dakota law to prevent against undue burden and discrimination on interstate commerce. He asserted that the presence of a safe harbor to protect those who don’t meet the minimum threshold, lack of retroactive application of the law, and simplified sales tax and access to sales tax software provided by the state all provided sufficient safeguards for companies needing to comply. This is a meaningful change from the prior standard outlined in Quill and will have a significant impact on how states structure their laws on how to collect sales and use taxes.
Georgia Regulations
Earlier this year, Georgia adopted House Bill 61, which creates a similar economic nexus standard to the one used in South Dakota. According to the law, an out-of-state seller is required to collect state sales and use tax the company had revenues exceeding $250,000 from the sale of property delivered electronically or physically to Georgia customers in the current or prior year. A company also may be required to collect sales and use tax if they conduct 200 or more separate retail transactions of property delivered electronically or physically to Georgia companies. The law, which is scheduled to go into effect January 1, 2019, intentionally was worded to follow the structure of the South Dakota law. The idea was that if the Supreme Court ruled in favor or South Dakota, it would be easier for Georgia to implement the change.
Contact Us
It’s clear remote sellers, online sellers and other similar companies will soon have to review their sales and use tax reporting requirements to ensure they’re compliant with various state regulations. Moreover, it’s almost certain states who don’t have a South Dakota like tax law will be formulating their own version to use as a template. If you have questions about the ruling, it’s impact or need assistance with your sales and use tax collection process, Wilson Lewis can help. For additional information please call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.