Wednesday, November 28, 2018

Remote Seller Sales Tax Issues (South Dakota v. Wayfair, Overstock and Newegg, US 17-494 06/21/18) Settled to the Satisfaction of the State of South Dakota

William Delaney, EA
Westwood, MA
This is the very big issue of whether or not a state may impose a sales tax collection obligation on a remote seller.  It was thought that, unless you transact business within the state, in some way, you were outside the reach of that state.  If there is no physical presence (warehouse, employees, representatives, etc.). the state could not impose its will on internet (remote) sales.

States now have adopted the concept of economic nexus, which stands for the theory that sales to residents of that state, no matter how generated or originated, are an adequate substitute for the physical presence test.  The only limitation on a state’s authority to assert a sales tax collection obligation is quantity (dollar amount of sales, a percentage of your total sales, or total number of sales).

South Dakota went to court and successfully challenged the Quill concept (physical presence test), as the only applicable standard.  In 2016, the state of South Dakota enacted a sales tax collection obligation on remote sellers when their South Dakota sales exceeded $100,000 or if they completed 200 or more transactions within a year.  The United States Supreme Court upheld the South Dakota statute.

Effective January 1, 2019, Wayfair, Overstock and Newegg will be required to submit to the economic nexus concept and begin to collect sales tax on South Dakota sales.

Mass. has a similar statute which requires a minimum of 100 transactions or $500,000 in sales.  RI also has a similar statute which requires a minimum of 100 transactions or $100,000 in sales.

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