The US Supreme Court overturned over a half century of precedent last Thursday, ruling that a state may reasonably impose sales tax collection obligations on out-of-state retailers with no physical presence in the state based on a certain threshold of in-state sales.
What does this mean for online or out-of-state retailers?
• Expect that South Dakota’s law is only the beginning. All states that impose sales tax have been closely watching this lawsuit and have been eagerly awaiting this outcome. Businesses can anticipate that the majority, if not all, of sales tax states will enact similar legislation in the near future.
• This, of course, means that retailers may soon be tasked with knowing the state and local sales tax laws for states across the country. A monumental task, especially for small and midsize businesses, and one that has the potential to reshape the retail landscape.
What will the states do?
• States will likely take immediate legislative and regulatory action adopting nexus standards aimed at remote retailers.
A number of questions remain for the retailers and states
• How will be the decision be applied to prior periods?
• What activity by a retailer is sufficient to result in a “substantial nexus” with a taxing state?
• Will states offer amnesty/voluntary disclosure programs for remote retailers?
• Will Congress intervene and implement rules governing when states can subject out-of-state sellers to sales tax collections and remittance requirements?
• What about local sales tax jurisdictions? Statewide sales/use tax collection system?
• Could income tax nexus be the next area to be changed?
Stay tuned. We anticipate states will respond quickly to this development, and we will issue updates as the state reactions come into sharper focus to assist our clients in complying with tax responsibilities going forward.
