The U.S. Supreme Court ruling on June 21, 2018 (South Dakota v. Wayfair, Inc.) overturned the physical presence standard for sales and use tax and left many retailers and other businesses unsure of how this change will affect them, if at all. In this FAQ, CSH’s State and Local Tax team addresses the most common questions and answers.
Q: What was the U.S. Supreme Court’s holding in Wayfair?
A: The U.S. Supreme Court Case, South Dakota v. Wayfair, Inc., overturned the physical presence standard for sales tax that had been in place since 1992 in Quill Corp. v. North Dakota. Click here for additional insight from CSH about the Court’s ruling.
Q: What is the statute that South Dakota passed for out-of-state retailers?
A: The South Dakota statute requires out-of-state retailers to collect and remit sales tax if the retailer has: 1) delivered more than $100,000 of goods or services into South Dakota, or 2) engaged in more than 200 transactions for the delivery of goods or services to South Dakota.
It is also important to note that South Dakota is a full member of the Streamlined Sales and Use Tax Agreement.
Q: Are there states where a statute similar to South Dakota’s is already in place?
A: Yes. Currently, there are many states that have statutes similar to South Dakota’s.
Q: Are there any states that recently changed their law due to the Wayfair decision?
A: Yes. Since the Wayfair case was decided most other states have issued revised laws or regulations. Nearly 40 states have now issued economic nexus statutes that incorporate a sales and/or number of transactions threshold, with effective dates ranging from 8/17/17 through 11/1/19. The New York effective date is 1989 based on a statute that was in place. Click here to access our interactive Economic Nexus Policy Map.
Q: Although it appears that South Dakota will not apply this statute retroactively, will other states?
A: The U.S. Supreme Court in Wayfair held that the obligation to remit sales tax would not be applied retroactively. The Court noted that this appeared to be one of the features “designed to prevent discrimination against or undue burdens upon interstate commerce.”
Some states across the U.S. had already enacted statutes that specifically prohibit retroactive assessments. Most states passed legislation applying their economic nexus requirements after June 21, 2018 and seem to follow Wayfair so that an undue burden is not imposed on taxpayers.
Q: Will Wayfair impact my business?
A: Determining whether your business will be impacted depends largely on:
- the industry in which your business operates
- the taxability of your products or services
- the amount of sales sourced to a state
- the number of transactions to a state
You’ll likely need to work with a state and local tax expert to analyze your business’ footprint and discuss your exposure.
Q: Are there specific industries that are impacted more than others?
A: Online retailers, distributors and remote sellers who traditionally may not have had physical presence in a state will most likely be impacted. Other industries such as manufacturing may be impacted due to increased collection and retention of exemption certificate responsibilities.
Q: What is a remote seller?
A: A remote seller is a business that sells its products to customers in a state, using the internet, mail order, or telephone, without having a physical presence in that state.
Q: What is subject to sales tax?
A: Generally, tangible personal property sold for consideration is subject to sales tax unless a valid exemption exists. In addition, certain services may be taxable, but these vary by state. Many services are not subject to sales tax. We recommend reviewing your revenue streams with an expert or the state to determine taxability.
Q: I am a remote seller and I do business in multiple states. What do I need to do?
A: Each state’s remote seller laws are different. To determine which law applies to your business, we recommend contacting a state and local tax advisor or the state to determine whether you need to file in the states that you are selling into. Once you have determined that you have a filing requirement, you should register as a vendor in the applicable state(s) and then begin collecting sales tax (and/or tax exemption certificates) and filing sales tax returns in the state.
Q: I am a remote seller who sells through a marketplace. Do I have to collect sales tax through the marketplace?
A: Unless the marketplace provider is collecting sales tax and filing the state returns on your behalf, you are required to register and collect the sales tax if you meet the filing requirements for each state.
Q: How do I apply for a sales tax license?
A: Registration for a sales tax license is required before you can begin collecting sales tax. Each state has different registration requirements. Before registering, please check with a state and local tax advisor to be sure you need to register or check with the state to determine their registration requirements and filing threshold.
Q: What other sales tax requirements do I need to know?
A: Many states require sales tax to be paid electronically, such as by ACH, EFT, or credit card. Please check with your state for their payment requirements. Also, many states require advance payment of sales tax (such as weekly or semi-monthly) that are trued up on the monthly or quarterly sales tax returns. Please check with your state for their advance payment requirements. A number of states require sales tax returns to be filed at the county or city level.
Q: Are there types of software that may help assist businesses with implementation?
A: Yes. There are numerous software companies that provide sales and use tax compliance applications. It is expected that software companies will be monitoring state legislation and making appropriate changes to their systems as necessary.
Q: Is there anything companies can do to prepare for the potential expansion of states enacting similar statutes?
A: Yes. In addition to working with an expert, you should fully understand your company’s sales footprint. Initially, you should begin to gather and document customer sales and number of transactions by state.
Additionally, it will be helpful to review your internal processes and procedures for the collection and retention of exemption certificates.
Q: What is expected going forward?
A: Over the coming weeks and months, it is expected that many, if not all, states that have a sales tax will consider enacting legislation similar to the South Dakota statute (if the state has not already done so).
Clark Schaefer Hackett’s state and local tax advisors will continue to monitor state legislation and will issue additional FAQs or Tax Alerts as guidance becomes available. If you have questions or would like to discuss the potential impact this ruling has on your business, please CONTACT US.