On June 21, 2018, the US Supreme Court (Court) issued its much anticipated ruling in South Dakota v. Wayfair. In a 5-4 ruling, a majority of the Court voted to overturn both Quill and National Bellas Hess, finding that the physical presence nexus standard articulated in the two earlier opinions “is unsound and incorrect.” As a result of the Court’s decision, states may now begin requiring all remote sellers to register, collect and remit sales and use taxes on transactions with in-state customers regardless of the seller’s physical presence.
An obvious implication of the ruling is that almost all web-based retailers will now need to really focus on their sales tax compliance while in the past this has been less of an issue, particularly for smaller sellers. Another pressing issue for multistate taxpayers is whether the states will attempt to assert liability for uncollected taxes on a retroactive basis. While most states have indicated that they will not do so, most states do have laws that apply an economic/minimum contacts nexus standard and could conceivably be enforced at will. Taxpayers should be wary that states will resurrect those statutes and begin enforcing sales tax collection responsibility conceivably as far back as the very first sale a remote seller may have made into the jurisdiction. Regardless, remote sellers that have made sales into a state and not collected sales tax should assess their particular situations immediately and consider approaching the states under their voluntary disclosure or amnesty programs.
Regarding compliance, multistate businesses that already were collecting in multiple states can expect to see their compliance costs increase, whereas businesses that have not been collecting and do not have a comprehensive sales and use tax compliance system will be under extreme pressure to rapidly assess and quickly implement a feasible and perhaps costly compliance solution.
Finally, but no less importantly, all taxpayers should immediately consider the impact of this decision on their operations; specifically budgeting for increased compliance costs, leveraging additional internal or external resources, and considering potential ASC 450 implications and other reporting obligations. For companies that self-assess use tax on purchases or claim exemptions, it will be important to closely evaluate how increased collection by vendors will affect tax payments, while marketplace providers and small sellers will need to determine who will be considered the “seller of record” responsible for tax collection and remission under various state interpretations.
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Brandon Caroprese, CPA, MST