South Dakota v. Wayfair – Sweeping Changes to Multi State Sales Tax and How They Affect Your Small Business

The United States Supreme Court's ruling in South Dakota v. Wayfair Inc. (17-494) marks a major turning point in the debate over whether online sellers should be forced to collect and remit sales tax in States in which they have no physical presence (nexus).

The ruling overturned Quill Corp. v. North Dakota, and National Bellas Hess, Inc. v. Department of Revenue of Ill., —which held that a State cannot require an out-of-state seller with no physical presence in the State to collect and remit sales taxes on goods the seller ships to consumers in the State.

Bottom line - The Supreme Court ruled that States have the right to collect sales tax from out-of-State sellers.

The decision was a victory for brick-and-mortar businesses that have long complained they are put at a disadvantage by having to charge sales taxes while many online competitors do not. And it was also a victory for states that have said that they are missing out on tens of billions of dollars in annual revenue.

But, what does this mean for you?

The first thing to keep in mind is Sales Tax laws regarding which products are taxable have not changed. If you did not previously sell products that were taxable in a given state, then nothing will change for you, business as usual. For example, in most states, professional services and digital products are not taxable.  This has not changed. 

What has changed is what defines physical presence in a state.  And if you have physical presence, you have nexus which is a fancy way of saying you have to remit and pay sales tax in that state.  For each state in which you have sales, you’ll need to assess whether your business meets the threshold for collection in each state, and prior year would serve as a good measure for this. In South Dakota this is either $100,00 in gross revenue from delivery of products or services into South Dakota; or 200 or more separate transactions. Other states have quickly followed suit and have enacted similar economic nexus laws.  

So, what’s next?

At this point you have a few options…

  • Wait and see–Given that states are clearly still in the midst of deciding what to do, South Dakota still needs to officially give the green light on the law, Congress may act but we’re not sure which stance they will take, and  there could be lots of pending state guidance post-Wayfair, one option is to hold off until the rules are clear.
  • Tackle economic nexus states –You could be aggressive and tackle multi state reporting head on.  Register in those states that have already enacted economic nexus laws, regardless of whether they are “official” yet. It is doubtful that any of these states would impose retroactivity. Consider voluntary disclosure/amnesty programs if retroactive worries. And then wait to see what happens everywhere else.
  • The “Overstock Approach” – is one of the larger online retailers that will be impacted by this new legislation.  They have elected to “turn it on everywhere and be done with all this stuff”!  This means that they collect sales tax on every item they sell regardless of the state.  This also means that for every dollar collected, the sales tax must be reported and remitted to the related state.  Even if you do not have economic nexus within a state – if you collect it, you must file and remit it. 

The important take away is DON’T PANIC! Your team at VAST is dedicated to keeping you on the right side of the law and are on hand to make suggestions and recommendations. If you would like to schedule a time to discuss the implications of this ruling for your business, please give us a call 775-359-7600.