Internet retailers can now be required to collect sales and use tax even in states in which they lack a physical presence, after the U.S. Supreme Court overturned a 1992 ruling that enabled much of e-commerce to be a tax-free zone.
In South Dakota’s closely watched case against Wayfair, the court ruled that the state’s 2016 law mandating that certain out-of-state sellers must collect and remit tax is permissible under the commerce clause. Therefore, South Dakota can constitutionally require out-of-state retailers to charge and collect sales and use taxes from in-state consumers even when the retailer has no physical presence within a state.
It is likely that more states will begin to enact similar economic nexus legislation, and force online sellers to collect sales tax.
However, there are still many open questions such as what level of sales constitutes “substantial nexus”. Is the $100,000 limit a substantial nexus as implemented by South Dakota? What does that mean for states that have enacted lower economic thresholds?
We are closely following this case and its ramifications, and we will be sending follow up emails with more details as they come out.
If you have any questions about how this new ruling will effect you or your business, please reach out to your Roth&Co financial adviser.
