In a 5-4 decision issued June 21, 2018, the Supreme Court ruled that internet retailers can collect state sales tax in states where they have no physical presence. Today’s ruling in South Dakota v Wayfair overruled the longstanding Quill decision that had been in place since 1992 and used a dormant commerce clause power that made physical presence essential in claiming sales and use tax.
“The Internet revolution has made Quill's original error all the more egregious and harmful," Justice Anthony Kennedy said in delivering the opinion. "Quill Court did not have before it the present realities of the interstate marketplace, where the Internet's prevalence and power have changed the dynamics of the national economy. The expansion of e-commerce has also increased the revenue shortfall faced by States seeking to collect their sales and use taxes, leading the South Dakota Legislature to declare an emergency."
This ruling is by no means the end of the confusion. Businesses will now have to be ready for the SUT rulings in Congress and the states. As the Tax Foundation states in their interpretation of today’s ruling:
In the states, a reminder, 31 states currently have laws taxing internet sales. Today’s decision will certainly change how states look at these laws but we may see states trying to see if their versions could survive even if they are less simplified and direct than South Dakota’s law. This ruling is not a blank check for states. The Court specifically observed that South Dakota’s law, and its tax laws generally, minimizes the burden on interstate commerce. Other states should craft their laws accordingly.
On Tuesday, July 10 at 2pm in our webinar “Navigating a Changing Sales & Use Tax Environment”, we will be discussing the impact of the Wayfair decision on sales and use tax and how CPA firms can help their clients maintain compliance in this ever-changing environment. Our event is free and is eligible for 1 CPE credit.