South Dakota v. Wayfair
On June 21, 2018, The United States Supreme Court ruled 5-4 in South Dakota v. Wayfair that states can mandate that businesses without a physical presence in a state with more than 200 transactions or $100,000 in-state sales 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. Since the decision was handed down by the Court, states and retailers alike have been asking “What’s next?”
According to the Court’s majority opinion, the South Dakota law did not have an unreasonable burden on retailers because of the following:
- It is not retroactive, meaning South Dakota can’t look back and require collection and remittance of sales and use tax on previously purchased items.
- Only merchants who have considerable amount of business are required to collect (according to the South Dakota law in question that means $100,000 in in-state sales or over 200 orders in the state).
- South Dakota is one of 20 states that have adopted the Streamlined Sales and Use Tax Agreement, which provides certain standardization within the sales and use tax statutes “to reduce administrative and compliance costs” for remote sellers.
Federal legislative update post-Wayfair
The debate on taxing internet sales arose after the 1967 Supreme Court decision in National Bellas Hess v. Illinois Department of Revenue, which set the physical presence standard for collecting sales tax on out-of-state purchases. In 1992, the Court affirmed the Bella Hess decision and directly stated that Congress is better suited to address this issue and has the “ultimate power to resolve” it. More than a quarter of a century later, Congress has been unable to change or overrule the physical-presence standard, but it was not for a lack of trying.
Despite widespread support from most states and a diverse coalition of small and large retailers for the Marketplace Fairness Act (MFA) and the Remote Transactions Parity Act (RTPA), congressional efforts to address the issue remained elusive. As a result, hopes of any change rested upon states’ efforts to challenge Quill, which were successful in the Wayfair case. Now that Quill has been overturned, questions on whether there remains a need for MFA, RTPA or other similar proposals to create a federal standard is a subject of debate among policymakers and businesses. Although the vast majority of states with a sales tax have implemented laws or regulations to institute an online sales tax on remote sellers, some congressional members – many of whom represent states without a sales tax – continue to champion bills that would reverse the Wayfair decision.
Featured AICPA Resources
Charts, Maps, and Guides
- State notices and resources for remote sellers
- State guides and remote seller nexus rules chart
- Remote seller nexus chart, economic nexus state guide, FAQs
- Remote seller nexus by state (map, thresholds chart, next steps) and state by state guide to sales tax nexus rules
- States follow South Dakota: a by-state guide on economic nexus
- Remote sales tax collection (NCSL – overview, state action, legislation, marketplace collection, SSUTA, revenue, nexus, and map)
- The Supreme Court’s online sales tax ruling is already a huge headache for small businesses, March 19, 2019
- M&A considerations in light of Wayfair, The Tax Adviser, Aug. 1, 2019
- Sales tax compliance post-Wayfair, The Tax Adviser, Aug. 1, 2019
- New York’s response to Wayfair: Storms on the horizon? The Tax Adviser, June 1, 2019
- Wayfair and economic nexus for foreign sellers, March 1, 2019
- Professional Liability Spotlight: Addressing risks related to the TCJA and Wayfair, Journal of Accountancy, Feb. 2019
- Supreme Court abolishes physical presence requirement for sales tax collection, The Tax Adviser, Sept. 1, 2018
- A taxing endeavor: Navigating state sales tax in a post-Wayfair world, Dec. 27, 2018
- More states respond to Wayfair, set sales tax collection dates for remote retailers, Nov. 12, 2018
- South Dakota v. Wayfair: What It Means for Your Firm
- Post Wayfair sales tax case: The path forward for sales and use tax reporting
- After Wayfair: Modernizing state sales tax systems, May 14, 2018
Congressional Legislation and AICPA Comments
- Online Sales Simplicity and Small Business Relief Act, H.R. 1933, introduced March 27, 2019, and S. 2350, introduced July 31, 2019
- Stop Taxing Our Potential Act, S. 128, introduced Jan. 15, 2019
- Protecting Businesses from Burdensome Compliance Cost Act, H.R. 379, introduced Jan. 9, 2019
- AICPA comments and testimony on Multistate Tax Commission (MTC) Draft Model Sales and Use Tax Notice and Reporting Statute, April 25, 2018
- AICPA comments on the Marketplace Fairness Act of 2013, Sep. 10, 2013
Reviewed April 11, 2019