By Marc Sporn
In a year already full of sweeping tax reform, a landmark decision handed down June 21, 2018 by the U.S. Supreme Court could affect just about every taxpayer in the country. In South Dakota v. Wayfair, Inc., the Court ruled that states can require remote sellers (including on-line retailers) to collect and remit sales tax, overturning rules in place for 26 years.
In 1992, the Supreme Court sided with Quill Corporation in Quill Corp v. North Dakota and effectively prohibited states from requiring a business to charge sales taxes on its sales into a state in which the business did not have a physical presence. Out-of-state retailers, including those selling on-line, have been able to follow Quill and avoid collecting and remitting sales tax, arguably giving them an advantage over in-state retailers that are required to charge sales tax. While consumers have always been required to pay taxes directly on their purchases when retailers didn’t charge sales tax, enforcement has been nearly impossible, and many consumers simply do not pay such taxes.
In 2016, in its attempt to challenge the “online retailer loophole,” South Dakota enacted a new law that would require an out-of-state retailer to collect and remit sales tax on sales into South Dakota. The law applies to any out-of-state business that has over $100,000 of goods or services delivered into the state or is engaged in 200 or more separate transactions in the state regardless of physical presence. Wayfair challenged South Dakota and the case made its way all the way to the U.S. Supreme Court.
After hearing oral arguments from South Dakota and Wayfair, the Supreme Court ruled in a 5-4 decision that the physical presence requirement established 26 years ago is essentially “unsound and incorrect” based on the technological advances of the Internet and the way it has transformed the national economy.
With the Supreme Court’s ruling, we expect more states and localities to pass their own version of the South Dakota law. Georgia already passed House Bill 61 earlier this year requiring out-of-state retailers to collect and remit sales tax in a similar fashion to South Dakota. In Georgia, remittance is required if a business has over $250,000 of goods delivered into the state or engages in 200 or more separate Georgia transactions. It is unclear if this minimum threshold and those established throughout the country will sufficiently protect small out-of-state businesses from the significant administrative burden expected to come from this law change. Georgia House Bill 61 will be effective January 1, 2019.
If you have questions about your specific situation, please do not hesitate to call a member of WBL’s tax team.