South Dakota v. Wayfair, Inc.

It’s been a big year for tax changes. The United States Tax Cuts and Jobs Act (“Tax Reform”) has taken front seat and grabbed much attention.

However, an equally big tax change occurred this year in the sales & use tax world with the Supreme Court decision South Dakota v. Wayfair, Inc. The Supreme Court ruled in favor of South Dakota’s authority to require out of state sellers without physical presence in a jurisdiction to collect and remit sales & use taxes on taxable sales into that jurisdiction. This is a reversal of the prior Supreme Court case Quill Corp. v. North Dakota decided in 1992 that prevented states from requiring sellers to collect and remit sales & use taxes UNLESS the seller had physical presence in the state.

So what’s happening?

South Dakota’s remote seller (out of state seller that sells online and off-line) rules state that the seller must collect South Dakota sales & use taxes if the seller:

• had annual gross revenue of more than $100,000 from sales in South Dakota; OR
• completed more than 200 sales annually in South Dakota.

You’ve guessed it. As of October 1^st, twenty six additional states have implemented South Dakota threshold rules. We expect all states that administer sales & use taxes to adopt similar rules. Most states expect sellers to register and start collecting immediately.

Does this affect my business?

Unless you have a single physical location (that only sells to walk-in customers) with no shipped products or services, this affects your business. That includes, but not limited to, retailers, manufacturers and distributors. For all business types, it is more important now that exemption certificates are in place and managed. Sellers to manufacturers especially should be concerned since many states have a reduced rate for sales to manufacturer end users.

Service providers such as sellers of bundled transactions (goods and services) and consultants should be aware how each state taxes services. This has not been a prior concern if the service provider performed all services from their home state with no physical presence elsewhere. Now service providers could have exposure if more than $100,000 in sales or 200 transactions into a state if that state tax services.

What to do now?

There should be a systematic approach to tackling this topic. The first steps are to determine your filing requirements and if there is any existing exposure. We’re prepared to assist with this. Please reach out to your Wegner team member or directly to Cam Brawley, Director of State and Local Taxes at cam.brawley@wegnercpas.com or 262-696-5192.

Have questions about Wayfair?

Cam is the Director of State and Local Tax (SALT) Services for Wegner CPAs, and has more than 30 years of state and local tax experience. He specializes in multi-state income, sales & use, property taxes, and unclaimed property. Contact Cam.