Internet Sales Tax

Sales Tax Issues

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.

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

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:

  1. Will the law be applied retroactively by states?
  2. Will all 50 states have different thresholds, filing requirements and payment requirements?
  3. Will the over 500 local jurisdictions charge sales tax too?
  4. Is the 200 transaction/$100,000 sales amount the new threshold or just the threshold in South Dakota?
  5. Does the Streamlined Sales Tax agreement provide clear guidance as the court seems to indicate or is it a suggestion?
Our Federally elected representatives are generationally unable to understand that the internet-based world of today does not operate like the brick and mortar stores and malls of their past experience. Small business, which provides 50% of the US GDP according to the SBA, has been pummeled by first the mega-retail chains in the 1980’s and 1990’s, then by the internet in the 2000’s and 2010’s and now by the twenty-year failure of the Federal government to provide for clear guidance and aid to protect the small business growth engine  of our country. We need an entry level of sales exemption from internet based actions by individual states and local jurisdiction, similar to the new $25 million rule allowed for choosing the cash method of accounting.

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David J Geslin CPA LTD

5775 Wayzata Boulevard, Suite 700 Minneapolis, MN 55416 cpa@davidgcpa.com