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US SUPREME COURT RULES OUT-OF-STATE SELLERS COULD BE REQUIRED TO COLLECT AND REMIT SALES TAX

By: Michael Antovski

06/22/18

On June 21, 2018, the Supreme Court in South Dakota v. Wayfair (Wayfair”) held that an out-of-state seller can be required to collect and remit sales tax in a State where seller does not have a physical presence. This ruling overturns prior law and could have significant tax compliance impact on out-of-state sellers.

Under prior law, a seller was required to collect and remit sales tax for a state only if the seller had a physical presence in that state (e.g., employees or real estate). Pursuant to the ruling in Wayfair, physical presence is no longer required-- paving the way for a state to require an out-of-state seller to collect and remit sales tax based on the seller’s economic presence in the state.      

Based on the facts of Wayfair, South Dakota enacted a law requiring a seller to collect and remit sales tax, if a seller (on an annual basis) delivered more than $100,000 of goods or services into South Dakota or engaged in 200 or more separate transactions for the delivery of goods or services in South Dakota. Wayfair challenged the South Dakota law on the basis that it did not have physical presence in South Dakota and therefore could not be required to collect sales tax based on the 1992 Supreme Court case called Quill Corp. vs. North Dakota (“Quill”). The Supreme Court stated that the “physical presence rule of Quill is unsound and incorrect” finding that the “modern e-commerce does not align analytically with a test that relies on the sort of physical presence defined in Quill.”