On June 21, 2018, the United States Supreme Court ruled in a 5-4 decision in South Dakota v. Wayfair, Inc., et al, that the physical presence test under the 1992 Supreme Court case (Quill Corp v. North Dakota (504 U.S. 298) no longer applies to the obligation to collect and remit sales tax on sales to customers in a state.
DON'T PANIC
Let's pause and everyone take a breath - the articles and posts about the case are like an avalanche of gloom and doom. We don't know exactly how all of this will play out. States will respond in different ways. Congress could still act. New challenges could arise. In the meantime, there is a safe harbor for small businesses to not have to collect sales tax under South Dakota's law. Other states that have enacted or proposed similar laws have the same or similar safe harbor. If all other states follow along, small retailers that are under those thresholds won't have to collect sales tax in every state.
A ‘Cliff Notes’ Version of the U.S. Supreme Court Wayfair Ruling
Quill is overturned; physical presence is not necessary to create substantial nexus
A business may be present in a state in a meaningful way without that presence being physical in a traditional sense
States will respond in different ways to utilize this NEW power (but it is NOT unlimited power)
This ruling applies to companies in any industry including service providers (NOT JUST ONLINE RETAILERS) – any company that has sales in a state, but hasn’t collected sales tax because they don't have a physical presence in the state
Protection may still apply to small businesses
South Dakota law is acceptable - substantial nexus is met with more than $100,000 in annual sales or 200 or more separate transactions; not retroactive; SD is member of SSUTA
Other states with laws similar to South Dakota will most likely be acceptable
Businesses can still challenge state laws under other Commerce Clause doctrines (i.e., if the state’s law causes an undue burden on interstate commerce)
Congress can still regulate interstate commerce
Approximately 20 states have economic nexus sales tax nexus provisions similar to South Dakota
Companies should respond diligently and cautiously.
Small Business Safe Harbor Should Be Challenged and Changed
There is a safe harbor for small businesses to not have to collect sales tax under South Dakota's law. Other states that have enacted or proposed similar laws have the same or similar safe harbor. If all other states follow along, small retailers that are under those thresholds won't have to collect sales tax in every state.
The 'de minimis' activity threshold is probably the remaining sticking point for each state to work with and could create further litigation. In my opinion, the 200 transaction threshold should be eliminated and states should simply rely on a revenue amount as a threshold. Small businesses need better protection especially since state laws are not uniform (complexity), and create an undue burden on interstate commerce for small businesses.
Challenges Remain
The case was remanded to South Dakota courts to determine if any further challenges to the law could be made. Stay tuned.