On June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair, Inc., et al, the highly anticipated challenge to the sales tax physical presence standard adopted through Quill v. North Dakota in 1992. Accordingly, the Court has overruled the Quill physical presence standard allowing states to impose economic sales tax nexus standards on remote sellers.
Writing for the majority, Justice Kennedy, who also sat on the Quill court in 1992, noted that the Quill physical presence rule was no longer appropriate for, nor could it have anticipated, the modern e-commerce economy. Finally, it was noted that most of the states had requested the Court overturn Quill, stating that it was “essential to public confidence in the tax system” that the Court avoid creating an unfair burden shift in tax collection to in-state retailers.
In light of the Court’s decision, there is great uncertainty in what the future holds for remote seller sales tax collection. Remote retailers and service providers will have a fragmented state landscape of various sales tax nexus provisions with little consistent guidance. With this decision, taxpayers should be concerned with historic liabilities from noncompliance from failing to collect or remit the sales tax under any state’s current nexus standard.
Consider the following questions to help your business begin to tackle the Wayfair decision:
- Where and how much are your sales and services sold into each state?
- What was your nexus footprint prior to the Wayfair decision? Voluntary disclosure and amnesty should be considered for noncompliant collection and remittance as state statutes of limitation of three or more years will still apply to past periods.
- What products and services do you sell? Items and services may be exempt from the sales and use tax in one state, and taxable in another. Understanding how those items are characterized is important for multistate tax compliance.
- Has your business considered a technology/automation solution? If so, does your ERP system track “ZIP+4” shipping address, individual line item taxability on an invoice, customer exemption status by state, and export sales into a return software? Determining sales tax compliance obligations in 10,000 jurisdictions requires using the right tools. Technology and ERP solutions are not necessarily “one size fits all” and should be considered with the needs of the business.
- How does your business stay up to date on new nexus legislation?
Additionally, your business should consider tracking of state legislative and regulatory developments that will become more prevalent in the coming months. New litigation stemming from the Wayfair decision is almost certain. Having a plan to respond quickly to state sales tax nexus developments must be an imperative.