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Understanding Sales Tax in the Post-Wayfair World

In June 2018, the U.S. Supreme Court decided South Dakota v. Wayfair. The ruling essentially stated that (subject to limitations aimed to protect small businesses) an economic presence in a jurisdiction, such as making an online sale to a customer who resides in that jurisdiction, triggers the requirement to withhold and remit sales tax pursuant to that jurisdiction’s rules.  Since then, businesses that operate in two or more of the nation’s 10,000-plus sales tax jurisdictions have been struggling to understand what they need to do to comply with the new definition of economic nexus.

The Court’s ruling was vastly different from its 1992 ruling in Quill Corp. v. North Dakota, which found that sales tax did not have to be collected unless the company had a physical presence in the state. Then again, Quill was decided when the Internet was in its infancy.

Understanding Wayfair

Wayfair did not expressly state a threshold for collecting sales tax, but the South Dakota statute in the case stipulates that any out-of-state business that makes $100,000 in sales or that have 200 or more sales in the state must collect sales tax. Although that is a good guideline, businesses need to remember that not all jurisdictions follow it, and many are creating new rules.

This creates problems for businesses for a number of reasons, including the following:

Analyzing Exposure

The Wayfair ruling is not going away, so businesses need to take several steps to analyze their exposure. Businesses need to —

Increasingly, online aggregate retailers such as Amazon and Walmart are withholding and remitting sales tax on behalf of their sellers.  The new ruling creates an even larger incentive to use an aggregate selling platform.  In the wake of the decision, new platforms and services are popping up to help businesses comply.

 

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