The below sales tax ruling and nexus discussion will help you determine if it is time for your company to decide if it has potential compliance requirements if it does business in multiple states.
Nexus is an important and confusing topic all in one. It relates to where your business is being conducted and now has added complexity due to a recent court decision that impacts sales made from one state to another.
Each state can be different with regards to nexus, sales tax, income tax and other business matters so it’s important to understand your company’s exposure to doing business between states.
The U.S. Supreme Court’s decision in South Dakota v. Wayfair will allow states to mandate a sales tax for items purchased online from out-of-state retailers.
On June 21, 2018, the U.S. Supreme Court issued its opinion on South Dakota v. Wayfair. This case is a landmark nexus (sufficient physical presence) case for sales and use tax that will have implications for many online sellers and multi-state businesses.
Prior to the case, a company had to have physical presence (defined by each state) whether it be an employee in the state, a sales rep, a location or other factors that would represent the company should register and comply with tax regulation in that particular state. With the advances in technology, selling online had the states wondering who was responsible for taxes causing a lot of debate and confusion.
In a 5-4 decision, the Court ruled that a state could require an out-of-state-seller to collect sales or use tax on sales to customers in that state, even though the seller lacks an in-state physical presence.
The Wayfair decision affects companies doing business in thousands of state and local tax-collecting jurisdictions across the country. The immediate impact will be on sellers with a significant virtual or economic presence in a state that asserts economic nexus.
Sellers delivering taxable products or services into a state with economic nexus will need to determine if they surpassed the dollar amount or transaction volume threshold for establishing nexus with that state. Sellers should be prepared for states to adopt and aggressively enforce expanded nexus provisions, although future legal challenges or Congressional action could limit the scope of the Court’s decision.
We expect state revenue departments to continue issuing guidance regarding the South Dakota v. Wayfair decision, and we will continue to follow those developments closely. There are thresholds provided in each state and it is important to understand that specific state’s regulations in regards to nexus and tax compliance.
If you would like to discuss how the decision might affect your business, please contact us.