U.S. Supreme Court Reverses Quill Decision in South Dakota v. Wayfair Case

On June 21, 2018, the U.S. Supreme Court ruled in favor of South Dakota, effectively reversing the long-held physical presence standard for sales tax collection that was in place since the 1992 Quill decision. The court’s decision makes physical presence not necessary for a company to have substantial nexus with a state.

Analysis

While the Court was clear they felt the physical presence standard created an unfair playing field between in-state stores and their online counterparts, they effectively left other key areas unaddressed. One such area is that South Dakota’s law pertains only to sellers who engage in over 200 transactions or deliver more than $100,000 of goods or services into the state on an annual basis. This provision was lauded as being friendly towards start-up businesses and small businesses alike. While the Court noted South Dakota’s inclusion of the provision, it is unclear whether other states will need to incorporate a similar small business exclusion to not run afoul of the Wayfair ruling. Another area not specifically addressed by the Court, in this case, is the impact on states’ abilities to impose nexus for income tax purposes on companies. This case only dealt with nexus for sales tax purposes; however, if a business needs to register and collect sales taxes in a new state, they will clearly be on the radar for other tax types as well.

Lastly is the issue of retroactivity. South Dakota’s law specifically states that any collection obligation would be prospective from the date of the enacted legislation (May 1, 2016), but it is not clear whether other states may use their own statutes to attempt to require sales tax collection for prior periods. Many states enacted legislation with expanded nexus provisions knowing full well they couldn’t enforce them until either Congress passed a new law or the US Supreme Court overturned Quill.

This decision will impact numerous businesses that are remote sellers (those without brick and mortar storefronts in various states). Companies should analyze their facts and circumstances and evaluate whether it would be beneficial to either take advantage of state voluntary disclosure programs or potentially join the Streamlined Sales Tax (an organization representing 23 states) to take advantage of their Certified Service Provider program (third party software and return filing services).

Please contact us if you have any questions about the South Dakota v. Wayfair decision and its impact on you or your business.

About the Authors

Mark A. Rossetti
Mark A. Rossetti
CMI
Senior Manager, State and Local Tax Services

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