The Quill Case Overturned: A National Sales Tax Compliance Problem
In a case with nationwide ramifications, on June 21st the US Supreme Court overturned the old Quill corporation decision in the case of South Dakota versus Wayfair, which will now allow individual states to attempt to collect sales tax from out-of-state sellers, such as online and website sales. Since 1967, remote vendors without a physical presence in a state could not be forced to collect sales tax. In Wayfair, the Court upheld a South Dakota law that requires remote vendors to collect tax if they have either 200 transactions or sales exceeding $100,000 in the state in a year. Under the South Dakota law, no physical presence is required.
With physical presence no longer a requirement to collect sales tax as a result of the decision, most tax firms are up in the air awaiting guidance. The Court's historic decision will have a tremendous effect on sales and use tax collection responsibilities for remote vendors. At least seven states have enacted laws that mirror South Dakota's legislation. And there are at least five more states with pending South Dakota-type legislation anticipating this decision. Businesses should also be aware that many states have a variety of different sales tax collection laws that do not require physical presence. A number of bills are currently in front of Congress addressing sales tax issues.
The Court held that South Dakota's law did not violate the Commerce Clause because the state adopted the Streamlined Sales and Use Tax Agreement, it did not apply the collection responsibility retroactively, and provided relief to small vendors
Small business in the country may come to a stand-still regarding internet sales activity. The wide-reaching decision will benefit individual states and possibly “brick and mortar” stores, but possibly to the detriment of growth. For example, if you do 1 non-resident return for an individual in Kentucky (a state that now charges sales tax on services) are you ready to charge, collect, remit and file sales tax returns? Do you also charge the local jurisdiction sales tax? How does a small business trying to get started comply with over 40 different state rules and 500 local jurisdiction rules when the whole world has moved to internet sales?
Other concerns for small business clearly include:
Will the law be applied retroactively by states?
Will all 50 states have different thresholds, filing requirements and payment requirements?
Will the over 500 local jurisdictions charge sales tax too?
Is the 200 transaction/$100,000 sales amount the new threshold or just the threshold in South Dakota?
Does the Streamlined Sales Tax agreement provide clear guidance as the court seems to indicate or is it a suggestion?