WAYFAIR TAX RULING
Not long ago, a manufacturing company with one location shipping products to multiple states across the country, only had to comply with the sales & use tax laws of their home state. If they expanded to a second location in another state and/or hired sales representatives in other states, they may have to comply with the sales & use tax laws of 3 or 4 states.
In 1992 in the case of Quill v. North Dakota, the U.S. Supreme Court concluded that a business must have physical presence in a state in order to require collection of sales or use tax for purchases made by in-state customers.
Fast forward twenty-five years with the advent of on-line shopping, same day delivery and massive warehouses and logistics capabilities that allow companies like Amazon and Wayfair to send products to any address in the United States. That prompted another case that went to the U.S. Supreme Court, South Dakota v. Wayfair. Handed down on June 21, 2018, this ruling in favor of South Dakota says that states can mandate that businesses without a physical presence in a state with more than 200 transactions or $100,000 in-state sales (economic nexus) must collect and remit sales taxes on transactions in the state. This decision overturned the Court’s 1992 decision in Quill v. North Dakota and 1967 decision in National Bellas Hess.
Other states took notice to this ruling and realized they were missing out on billions of dollars in sales tax revenues from foreign corporations. During the last two years 44 other states adopted the same or similar legislation to those adopted by South Dakota. This dramatic shift in the applicability of state sales & use tax laws across the country affects not only e-commerce businesses but any company that ship products or provide services across state lines. As a result, a company could be subject to any of the 12,000 taxing jurisdictions in the United States that have some form of sales & use tax. A daunting task for any company. That same manufacturer mentioned earlier could now be subject to sales & use taxes in 20, 30 or even 45 states, not to mention the numerous cities and counties within those same states that impose their own sales & use tax.
During this same time period, states have made changes to their sales & use tax rates and the taxability of certain products and services, especially those involving the digital economy. States are also adopting more aggressive methods for searching for and auditing businesses located in another state that are selling to customers within their state. Delinquent filers could be subject to multiple years of back taxes as well as interest and penalties. In a similar manner to utilizing corporate tax experts to deal with an IRS audit, companies should also hire sales & use tax experts, like AST, to become compliant with all applicable jurisdictions where they conduct business.
