Online Sellers might have to start collecting sales tax regardless of nexus. On June 21, 2018 the Supreme Court case South Dakota v. Wayfair, Inc. ruled that states have the authority to require online retailers to collect sales tax even if they have no substantial connection to the state.
Prior to the ruling, online retailers only had to collect sales tax in states which they have nexus. Nexus is a physical connection to the state through a brick and mortar store or warehouse or a salesperson based in the state. When a retailer does not collect sales tax, the burden of collection resides with the consumer – and most of the time – the consumers do not pay in the sales/use tax on their own. This results in an estimated annual loss in state tax revenues of tens of billions of dollars.
South Dakota took matters into their own hands and passed a law to require online retailers to collect and pay sales tax of 4.5% if they had more than $100,000 in annual sales or more than 200 transactions per year in South Dakota. Wayfair did not collect sales tax for their sales in South Dakota and this lead to the court case, South Dakota v. Wayfair.
In 1992, in the Quill Corporation v North Dakota case, the Supreme Court had ruled that states could not require companies to collect taxes for the state if they did not have a significant connection to the state. South Dakota v. Wayfair effectively overturned the ruling of the 1992 case.
This is a big win for the brick and mortar companies as well as major online retailers like Amazon who are already collecting sales taxes on all their sales. It will even the playing field and also provide more income for the states who choose to partake in the ruling. Currently, there are only few states that have laws in place to allow them to enforce retailers to collect sales tax regardless of nexus. Many states are expected to start the legislative process to get some laws in place so they can take advantage of the recent Supreme Court ruling.
Online retailers in each state will need to review their sales tax situation on a regular basis to ensure they are abiding by any new sales tax laws passed in the coming years. This will result in a burden to online retailers with more research and paperwork required for managing their business. Ultimately, consumers will bear the financial burden and pay more for their online purchases.
Casie Nelson, Controller