The Supreme Court ruled June 21, 2018 on a sales tax case that removed the physical presence standard that has long been the standard for sales tax. Back in 1992, in Quill v North Dakota, the courts ruled that businesses needed to have some level of physical presence in the state before they would be required to collect sales tax. This month, in Wayfair v South Dakota, the court overturned that standard.
South Dakota passed a law requiring vendors that sold more than $100,000 or had more than 200 transactions in their state on an annual basis to collect their state sales tax. Wayfair challenged this ruling and lost. In their ruling, the court determined that the physical presence standard was unsound and incorrect and doesn’t reflect the present reality of the interstate marketplace. The court also determined that the physical presence rule is not reflective of the compliance costs to file in multiple states.
There are several other states that have a similar standard of economic presence in effect which includes Alabama, Georgia, Indiana, Kentucky, Maine, Massachusetts, Mississippi, North Dakota, Ohio, Pennsylvania, Rhode Island, Tennessee, Vermont and Wyoming.
Companies will need to track their sales volume by state and monitor state sales tax laws to determine where they will be required to register and file. In addition, since states vary on which products or services are taxed, companies will also need to determine whether their products or services are taxable in each state that they have nexus. Sales tax software is available that can integrate with many business software solutions to help with preparing, filing and paying the appropriate state and local sales taxes.
If you have questions please contact Barb Sawdy, CPA at firstname.lastname@example.org