Even if you’re a small online seller with a presence in a single state, should you immediately start collecting sales tax from your out-of-state buyers? That’s a question on many minds after Thursday’s Supreme Court ruling in South Dakota v Wayfair (see EcommerceBytes’ article, “Supreme Court Throws Out Longstanding Sales Tax Rule-Book,” published on Saturday).
We asked some vendors of sales-tax services for their advice.
Mark Friedlich, Esq., CPA and Senior Director of Tax & Accounting North America for Wolters Kluwer (publisher of CCH SureTax) said under the 1992 Quill ruling, the interpretation of the Commerce Clause was that the “substantial nexus” required to justify imposition of a sales tax was “physical presence” (that is, property or employees) of the company in the state. The decision in Thursday’s South Dakota vs Wayfair ruling uses economic nexus with minimum thresholds as the standard for substantial nexus.
“To prepare, online sellers should perform a nexus “profile” immediately” by reviewing in which states they have online sales. “Businesses should leverage a set of tools that combines the deep domain expertise of the nexus footprint in all 10,000 taxing jurisdictions across the US, with the technology to quickly and easily keep track of, calculate, collect and remit sales tax to the taxing authorities.”
Likewise, Charles Maniace, Director of Regulatory Analysis for Sovos, said sellers should start preparing. When we asked him if sellers must immediately begin collecting sales tax for all states and all localities, he said no, “but it does mean that sellers need to start preparing for a sea change in their compliance obligations. In South Dakota, based on how the law was written the fact that the case was technically remanded to state court likely means that the new standard is not immediately enforceable.”
He explained, “There are a small handful of states that may, in pretty short order, announce that they are enforcing existing economic nexus standards which, under the law, took effect immediately upon the Supreme Court Decision (North Dakota and Vermont).
“Other states may, based on how their laws are currently structured, may be able to enact economic nexus standards through DOR regulations, which cannot be done immediately but can be done fairly quickly. Other states will have to enact statutes that incorporate economic nexus standards, and statutes take time.”
Maniace noted that while the opinion addresses South Dakota law, the case has enormous national ramifications both short term and long term. “One more small bit needs to be shaken out, he said, “and that is whether the fact that the Supreme Court remanded the case back to the South Dakota lower courts means that a final disposition needs to happen before enforcement can kick off. In other words, the plaintiffs have one more opportunity to make any other Commerce Clause challenges to the law (aside from physical presence) and until we know what they opt to do, enforcement must wait. I suspect that we will be hearing from SD shortly on this point.”
We asked David Campbell, CEO of TaxCloud the same questions. Must sellers immediately begin collecting sales tax for all states and all localities? “While that is one possible response, we don’t believe the situation is quite so absolute,” he said.
“We are expecting the various States to start issuing statements and guidance for their in-state sellers, as well as to serve as notice to out-of-state sellers, regarding that states understanding of the ruling, relative to the states’ current statutes.
“We believe many states may already have statutes in place anticipating yesterday’s ruling, while likely many more states do not have legislation in place to achieve the simplifications recognized by the Supreme Court as material considerations, including 1) a de minimus threshold for interstate commerce, and 2) ensuring retailers have access to free compliance software and services
“So, we believe the answer to your question is no, not immediately.”
We asked Campbell who would have to collect taxes for transactions with South Dakota residents and when.
“For this answer, it may be easier to answer the second part first: beginning when? Our reading of the ruling is that the case now returns to the South Dakota Supreme Court to evaluate the case on its merits, unfettered by the now antiquated physical nexus standard defined by Bellas Hess (1967) and upheld in Quill (1992). Until that case is resolved, South Dakota has already enjoined itself from enforcing that law on any out-of-state retailers.
“As to who will have to collect, once that case is decided, it seems their economic nexus definition, or what we are now referring to as a de minimus threshold for interstate commerce, which is any retailer with more than 200 transactions or $100,000 of sales into South Dakota over the trailing 12 months.”
TaxCloud’s Campbell advised sellers, “Take a deep breath. Your world is not ending, and no states want to put you out of business. States do want retailers to collect the sales tax those states’ citizens rely on to fund local priorities.”
Campbell found a silver lining for online sellers in the Supreme Court decision. “Eliminating the physical nexus standard is good news for all retailers because it negates or the states’ need to enact confusing and controversial laws (such as Massachusetts’ cookie nexus law) in efforts to bypass Bellas Hess and Quill and get remote retailers to collect sales tax legally due.”
The best place for concerned sellers to nail down their obligations would be their accountants and perhaps a tax attorney specializing in these matters. And if you’re shopping for sales-tax software, note there are additional services including Avalara and TaxJar.
Leave a comment on the AuctionBytes Blog.