U.S. Supreme Court's Decision Expands the Ability of States to Tax Retailers
The Supreme Court issued a 5-4 ruling in South Dakota v. Wayfair
that overturned a long-standing precedent limiting the ability of states to tax sales of goods to citizens in their states that originate from other jurisdictions. Under previous law, only those sellers with a "physical presence" in a state could be obligated to collect and remit sales tax. In Wayfair
, the ruling did away with the physical presence test for sales tax nexus, thus opening the door for states to assess and collect tax revenues from retailers who historically relied on prior law to avoid state specific sales tax despite benefitting from sales to in-state buyers.
The Supreme Court's decision is not only a win for state and local jurisdictions who now have broader taxing power, but also for brick-and-mortar retailers whose online competitors were often shielded from sales tax collection duties. Most states presumably will revise current sales tax laws in order to take advantage of this opportunity to capture more revenues from out-of-state retailers operating on the internet. Small businesses who have an online sales component to their offerings could find themselves having to navigate scores of state and local sales tax laws and rules. Time will tell what impact this will have on such businesses as states and other localities assess the opportunities now available to tax online sellers located in other jurisdictions.
If you have any questions about this issue, please contact:
John F. Allevato
Andrew J. Darcy