You may be collecting, reporting, and remitting
a lot more sales tax in the near future
The Supreme Court of the United States has just overturned Quill Corp. v. North Dakota, which prevented individual states from requiring out-of-state sellers to collect sales taxes from customers if they did not have a physical presence in the state. For years states have missed out on collecting MILLIONS of dollars in sales tax because online retailers could rely on this standard (remember when Tennessee went up against Amazon? This is why Amazon sends everyone those yearly emails stating that you owe $52.38 in Tennessee use tax). States have been chomping at the bit to change the law, and Wayfair v. South Dakota is the green light for states to pass sales tax laws that catch up with the ever-growing online market. Multiple states, including Tennessee, have already passed such laws. South Dakota’s law just received a stamp of approval from the Supreme Court.
Under the Commerce Clause of the Constitution, a state cannot require a seller to collect sales tax from its residence unless the retailer has “substantial nexus” with the state. Until now, that meant a physical presence of employees or property. Under Wayfair, South Dakota’s proposed “economic presence” standard – at least $100,000 in sales or at least 200 sales transactions to customers within the state per year – is enough.
Don’t worry, the Commerce Clause isn’t dead, and it can still protect businesses from any state-imposed undue burdens on interstate commerce, including state sales tax laws, but you can bet states will be coming up with innovative definitions of “economic presence” in the near future, and it will be up to the courts to decide exactly what that means. Right now, it means $100,000 or 200 transactions.
Any company with out-of-state customers could potentially feel the impact by the Wayfair case and its aftershock. Please contact us if you are concerned about how this decision could impact your business. We will be keeping an eye on developments in the state legislatures as the new sales tax laws materialize.
Ashley Hodges Morgan is based in the firm’s Memphis office. She focuses her practice on business and transactional matters, as well as federal, state and local taxation, including United States Tax Court litigation, letter ruling requests, civil tax disputes and controversy involving the Internal Revenue Service and various state and local tax authorities. Additionally, Ms. Morgan represents and advises accountants across the United States regarding mitigation of potential malpractice claims, malpractice defense and disciplinary proceedings.
Ms. Morgan and her husband, Cade Morgan, reside in Downtown Memphis.