EAlert: Wayfair US Supreme Court Ruling

Today’s ruling, in South Dakota V. Wayfair, paves the way for states to tax ALL e-commerce sales made to customers in their state.  This means that online retailers of all types will have to register, collect and remit sales tax and file sales tax returns in each state in which they make sales.  Gone are the days that a company would be required to have employees or a physical location in the state to require such filings and tax collections. Physical presence is still required for Income tax. The Wrigley US Supreme Court case is still in effect for Income tax. Wayfair supersedes the Quill US Supreme court case for sales tax.

Now that the United States Supreme court has ruled physical presence (sales tax only) has been replaced by modern technology, marketing, and the present day realties–since physical presence is no longer required—the ball has been bounced back to Congress for the heavy lifting (which is to implement this ruling).
Keep in mind the following:

  1. The safe harbor exemption: Wisconsin maintains a safe harbor of the lower of $100,000 of goods or services into the state or engage in 200 or more transactions. This is good for smaller distributors who lack the ERP software to manage sales tax filings in all 50 states. Keep in mind; all states have their own safe harbors. Will some states eliminate their safe harbors after this ruling? Let’s wait and see what happens.
  2. Congress now has to rule on the streamlined sales tax solutions:
    1. The RTPA (remote Transactions Parity Act) which allows states to collect if they agree to simplify their sales taxes.
    2. MFA (Marketplace Fairness Act, a proposal from retiring Republican Rep Bob Goodlatte R VA) that makes sales tax a business obligation rather than a consumer obligation and would have a sales tax rate based on the nexus, physical location of the business—who would then send the sales tax withheld to the state where the customer is located. However, at the rate of the amount collected, not the rate of the final destination consumer. This could change the physical situs of businesses to states with lower sales tax rates if MFA becomes law.
Please remember an important aspect of this case: sales tax is a withholding tax that will pierce the corporate or LLC veil of legal liability protection and attach directly to the shareholders and responsible parties, which makes compliance an essential planning item for all businesses.

To read more about this ruling, click here.

Categories: Tax