South Dakota v. Wayfair

How the Supreme Court’s Recent Ruling Changes How Online Retailers Collect Sales Tax

Recently, the US Supreme Court ruled that states can impose sales tax on online purchases, even if the business doesn’t have a physical presence (nexus) there. This decision reverses an older ruling that said sellers only had to collect state sales taxes if they had a warehouse or office in the state.

Background

Before e-commerce became a significant presence in our lives, the Supreme Court ruled in 1992 that remote sellers would have to collect state sales taxes only if they had a physical presence in the state ( Quill Corp. v. North Dakota .) The rise of online retail has prompted states to find new ways to collect sales and income taxes from companies that conduct business virtually.

Present Day

In an effort by the States to collect additional revenue, the physical presence standard was challenged recently in South Dakota v. Wayfair , with the Supreme Court ruling to overturn the prior decision.

Impact on e-Commerce

The South Dakota v. Wayfair decision allows all states to require retailers to collect sales tax from internet sales, regardless of whether the online retailer has a physical presence in the state the sale occurs in. For example, an online retailer based out of California is already accustomed to paying sales tax for purchases made by customers in California, but the business could now be subject to remitting sales tax to every state their customers live in.

Consequences for Small Business Owners

While large retailers such as Amazon have the resources to easily adopt the new law, small online retailers will feel the impact the most due to the increase in costs necessary to understand and be in compliance with the expanded tax requirements.