21 Jun A Taxing Situation
The Supreme Court just overturned the 1992 ruling from the Quill v. North Dakota case requiring that a business must have a physical presence within a state in order for the state to collect sales tax.
The Supreme Court ruling In the Wayfair v. South Dakota case, affirmed South Dakota’s claim that Wayfair must collect sales tax for sales in South Dakota. South Dakota passed a law two years ago demanding that all retailers that, on an annual basis, have more than $100,000 in annual sales or engage in 200 or more separate transactions, pay a 4.5 percent tax on all sales.
In the decision for the Court, Justice Anthony Kennedy said the 1992 decision was “unsound” and obsolete in the eCommerce era. As a result of this new ruling, internet retailers can be required to collect sales tax in states where they have no physical presence.
Sales tax regulations can be quite complicated and difficult to navigate with tax rates varying by state, county and city. In the case of South Dakota, the regulations were greatly simplified and threshold sales figures were adopted, most likely lending to the Justice’s opinion that South Dakota’s approach did not put an undue burden on interstate commerce.
There have been efforts on a Federal level to implement a streamlined sales tax approach. However, as with many issues before Congress, there is a bit of a logjam between two competing solutions; the Remote Transactions Parity Act (RTPA) or Marketplace Fairness Act (MFA). The essence of each would let states collect if they agree to simplify their sales taxes, have it collected based on the tax rate where the company is located but send the revenue to the jurisdiction where the customer is located.
It will be interesting to see how this plays out as there are 31 other states with internet sale tax regulations which in most cases are more complicated. This is not to say these states will prevail since one of the basic premises of the ruling was that the simplicity of South Dakota’s regulation did not put a burden on interstate commerce.