It's a New Era: Sales Tax Compliance after South Dakota v. Wayfair

The United States Supreme Court overturned the physical presence standard for sales and use tax nexus for remote sellers in its opinion on the case of South Dakota v. Wayfair. The Court ruled the physical presence standard established by Quill is “unsound and incorrect.”

The Court’s ruling effectively ushers in an “economic nexus” era for states and remote sellers alike.

Economic nexus is the concept of a presence based solely on economic activity in a state.  The economic activity is typically measured by gross receipts derived from and/or the number of transactions sourced to the applicable state.

South Dakota’s neighbor, North Dakota, immediately updated its website with information for remote sellers and the requirement to collect sales tax. North and South Dakota’s sales tax laws relative to remote sellers are very similar. In both states, remote sellers that have gross sales exceeding $100,000 or 200 separate transactions are required by law to collect and remit sales tax.  It is expected that many states will follow the lead provided by South Dakota v. Wayfair in the coming weeks and months.

If your business exceeds $100,000 in gross sales or 200 separate transactions in any state, you may be subject to sales tax collection in the near future.

Now is the time to review your organization’s activities outside your home state to determine the impact of Wayfair on your sales tax compliance obligations. Multistate sales tax collection is complicated and adds to the administrative responsibilities of the business.

Businesses that are now subject to sales tax collection will have additional administrative and compliance responsibilities including:

• Registration with the state(s)
• Tax rate determinations and maintenance
• Taxability determinations for products or services sold
• Obtaining exemption certificates, when applicable

The administration and compliance of sales tax can overwhelm an organization when the tax rules change. Constant compliance with changes and nuances in states’ regulations can be especially burdensome when a business is uninitiated, understaffed, or focused on a pressing business initiative.

Schneider Downs’ State and Local Tax (SALT) team can assist with your tax needs. Our dedicated professionals are poised to address the changes brought about by the Wayfair ruling.

Schneider Downs’ SALT team addresses the entire spectrum of multistate sales and use tax issues and opportunities of our clients. If you have questions, please contact a member of our SALT group.