Supreme Court Overturns Sales/Use Tax Rules

On June 21, 2018 the Supreme Court overruled its 1992 ruling, Quill Corporation v. North Dakota, which had barred states from requiring businesses to collect sales taxes unless the business has a physical presence in the state.

The court ruled that the physical presence nexus standard for sales/use taxes was “flawed on its own terms” and that the 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. [See South Dakota v. Wayfair, Inc. (June 21, 2018) U.S. Supreme Court, 17-494.]

Several states have enacted economic nexus provisions imposing a sales/use tax collection duty on out-of-state sellers whose sales exceed a certain monetary threshold or a certain number of transactions annually.

Multistate sellers should consider the impact of this ruling on their business, especially regarding:

Future compliance efforts in light of the court’s decision

Potential prior-period exposure in various states, especially e-commerce companies utilizing services such as Fulfillment by Amazon where the physical presence was unclear and/or temporary, or other companies that believed their physical presence was insufficient to establish nexus

Some issues remain and should be resolved in the near term as states almost certainly will enact their own economic nexus statutes. Will Wayfair apply retroactively in the states with existing economic nexus statutes or other states or apply prospectively?

We’ll be issuing additional information on Wayfair as these issues are resolved.

June 21, 2018