The Sales Tax Impact from South Dakota vs Wayfair Court Case
The US Supreme Court on June 21, 2018 ruled in favor of South Dakota in the South Dakota vs. Wayfair court case. This court case struck down the previous Quill vs North Dakota court case that set precedent that retailers did not have to collect and remit sales taxes in states that they did not have a physical presence. The South Dakota vs. Wayfair court case now allows states to enact economic nexus rules that can require out of state retailers to collect and remit sales tax in the state that the customer resides in if the seller meets certain thresholds (which is important to understand and figure out if you do meet these thresholds). It also makes this change prospectively, meaning states cannot go back and charge retailers for uncollected sales tax or customers for unpaid use tax. This court decision, however, does not change, what and how states determined goods to be taxed or not taxes from a sales tax perspective. Goods or services that were exempt from sales tax in a given state will continue to be exempt from sales tax.
So where does this leave us now… As of today, there are 22 states that have economic nexus laws in place. Most of these laws were put into place knowing that this court decision was a potential outcome. These states will be rolling out guidance on a state by state basis pending when their economic nexus laws go into effect (North Dakota’s law went into effect immediately once the court ruled in favor of South Dakota). This will mean that retailers that meet the thresholds of qualifying for economic nexus will need to register with that state. This law also will impact service providers that provide services remotely as some states put a sales tax in place on services.
There are also bills in the House and Senate that would directly impact this ruling that would allow Congress to set national rules or create a national clearinghouse for state sales tax. It is unclear whether Congress will push these forward or not. Right now, since South Dakota’s law was what was being ruled on, that law is now in effect for economic nexus, meaning that if you make more than 200 transactions or $100,000 in the current or previous year, you should register in South Dakota for sales tax and start collecting and remitting sales tax. The other 21 economic nexus states will be assessing the impact of the case on their law and start rolling out guidance as to when their law goes into effect and any necessary changes as a result of the court case.
As registering and managing sales tax in each state will be different, there are a couple of resources available to simplify or take the burden off of you.
- The Streamlined Sales Tax Register can register you in multiple participating states
- The Multistate Tax Commission is a collection of representative from different state tax agencies that is working on uniformity rules in order to keep the sales tax process consistent from state to state
- TaxJar put together a list of how to register in every state that has a sales tax
- Avalara (sales tax compliance software) has put together a number of resources on its South Dakota vs Wayfair page
- In addition, Avalara is hosting a Q&A on this new case and its impact on your sales tax compliance on June 28 at noon central
If you need any assistance in understanding the sales tax compliance for your company, you can fill out our new client form and we will be glad to assist.