On January 12, 2018, the United States Supreme Court made the decision to hear State of South Dakota vs Wayfair Inc., Overstock.com, Inc., and Newegg Inc. In the case, Wayfair, Overstock, and Newegg challenged South Dakota Senate Bill 106, which requires remote retailers with annual in-state sales exceeding $100,000, or 200 separate transactions, to collect and remit sales tax starting April 1, 2016.
The Supreme Courtâ€™s decision in State of South Dakota vs Wayfair Inc. will affect state nexus laws for remote sellers across the United States. If the Supreme Court sides with South Dakota:
- States may no longer be prevented from requiring remote sellers with no physical presence to remit sales tax on in-state sales.
- This burdens retailers with compliance reporting by requiring retailers to file in many states were they previously did not have a filing requirements due to lack of physical presence.
- Retailers will also be required to do their due diligence in researching the taxability of each product/service for each state they remotely do business in.
South Dakota Supreme Court found Senate Bill 106 to be unconstitutional under the 1992 U.S. Supreme Court ruling in Quill Corp. vs North Dakota. Quill prevented states from collecting any sales tax from retailers unless the retailer had physical presence in the state. Most states argue the Quill decision is outdated and that they are missing out on sales tax revenues.
Multiple states across the United States have proposed or enacted similar laws creating economic nexus and requiring remote sellers with no physical presence to remit sales tax.
REDWâ€™s State and Local Tax (SALT) team is closely monitoring the proceedings in this case. For more information or if you have any questions about the potential impact of the case, please contact James Ortiz, SALT Senior Manager.