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Focus on State and Local Taxation: Sales Tax Nexus Standards

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On January 12, 2018, the Supreme Court of the United States granted a petition for certiorari in the case of South Dakota v. Wayfair, Inc., a case to determine the constitutionality of a South Dakota statute obligating businesses with no physical presence in the state to collect and remit sales tax.
February 15, 2018

On January 12, 2018, the Supreme Court of the United States granted a petition for certiorari in the case of South Dakota v. Wayfair, Inc., a case to determine the constitutionality of a South Dakota statute obligating businesses with no physical presence in the state to collect and remit sales tax.

The Supreme Court has agreed to review the physical presence standard established in the 1992 decision of Quill Corp v. North Dakota, which bars states from requiring out of state businesses to collect sales tax on purchases made by their residents unless those businesses have a physical presence within their state.

The Court’s decision to grant cert in the Wayfair case suggests that the justices may be willing to consider changes to the physical presence standard. In Quill, the Court invited Congress to pass legislation addressing the short comings of the physical presence standard. The timing of the Court’s decision to hear Wayfair is likely in response to prolonged congressional inaction and the recent amplification of efforts by the states to circumvent Quill by passing legislation similar to South Dakota’s as well as the increased adoption of use tax notice and reporting requirements.

The Commerce Clause is a constitutional principle that prohibits states from passing legislation that discriminates against interstate commerce, and is the principle that the court in Quill declared to be the source of the physical presence standard. The South Dakota statute arguably eludes discrimination by setting a floor of $100,000 in gross revenue and 200 in remote transactions with in-state consumers for an out of state business to be obligated to collect sales tax.

The Court is expected to hear the case of South Dakota vs. Wayfair later this spring, with a ruling possibly handed down this summer. The implications and scope of the Court’s decision in Wayfair are still uncertain, but it seems likely that the physical presence standard may soon fall by the wayside.

For questions or more information on the impact that this law change may have on you and your business, please contact one of RubinBrown’s State and Local Tax (SALT) professionals.

 

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