Physical Presence Sales Tax Nexus Standard Overruled

U.S. Supreme Court Issues its Wayfair Decision

Physical Presence Sales Tax Nexus Standard Overruled

On June 21, 2018, the U.S. Supreme Court issued its highly anticipated decision in South Dakota v. Wayfair, overruling Quill’s physical presence sales tax nexus standard. This 5-4 decision is a watershed moment in state taxation and will have substantial implications for all businesses, not just internet retailers, as well as consumers, and state and local governments.

For detailed information on the Court’s Wayfair opinion and some thought as to its impact, please read BDO’s in-depth analysis. Key insights from this analysis include:

  • Overnight, Wayfair changed a remote seller’s considerations from “do I have a physical presence?” to “how do I comply with all of the state and local jurisdictions where I deliver my products or services?”
  • South Dakota’s statutory requirement of a remote seller’s minimum economic activity of $100,000 of sales or 200 separate sales transactions was viewed as sufficient for substantial nexus. Prior to Wayfair, almost half of the states that impose sales and use taxes had statutes comparable to South Dakota’s. It is now reasonable to expect that most, if not all, of the remaining states will conform to similar statutes and begin implementing changes or collection efforts.
  • The decision is also sure to embolden states that have been imposing economic nexus for income tax purposes for a number of years and is supportive of economic “factor-presence nexus” statutes that some states have enacted in recent year.

Given the significance of the Wayfair decision, the ruling will continue to be scrutinized for further guidance over the coming days and months. However, it is certain that the sales tax nexus landscape is changing rapidly and proactive preparation will be key.

HBE will continue to monitor the status of this issue and provide updates as they become available. In the meantime, should you have any questions on how the Wayfair ruling may affect you or your business, please contact any one of our firm’s trusted advisors.

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