The June 21, 2018 U.S. Supreme Court ruling in South Dakota v. Wayfair established that a state can require an out-of-state seller to collect sales or use tax on sales to customers in that state, even though the seller lacks an in-state physical presence. Now, when an economic or virtual presence exists without a physical presence, that will likely be enough to create nexus under the new Wayfair standard. In order for a state to impose this new economic nexus standard for sales tax, the state must have enacted legislation that establishes their own requirements in regard to economic nexus. The thresholds and requirements to establish economic nexus will likely be different for each state. Keep in mind that some states may enact statutes that are more aggressive than others. South Dakota’s economic nexus laws at issue in Wayfair established nexus with South Dakota if the business in the current or previous calendar year: 1) had gross revenue from sales of taxable goods and services delivered into the state exceeding $100,000; or 2) sold taxable goods and services for delivery into the state in 200 or more separate transactions. It is likely that South Dakota’s threshold requirements are constitutional. Any threshold requirements enacted by a state that are more aggressive than South Dakota’s will likely face strong scrutiny.Going ForwardWe encourage remote sellers and online retailers to discuss the immediate implications of this case with their tax professionals, especially if they sell to consumers in states that have enacted economic nexus statutes with respect to sales and use tax collection or reporting requirements.Potential Impact and Next Steps
The State and Local Tax (SALT) professionals at Elliott Davis will be providing further coverage and analysis of this landmark decision in the days, weeks and months to come. If you have questions about your particular tax situation or need help in evaluating the impact for sales and use tax collection on out-of-state vendors, please contact your Elliott Davis tax advisor. Elliott Davis has a team of experienced SALT professionals who can assist you with your sales and use tax guidance needs.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.