On June 21, 2018 the U.S. Supreme Court empowered states to tax online shopping. In
South Dakota v. Wayfair Inc.
, the court upheld a state law that allows South Dakota officials to collect sales taxes from other states’ businesses that sell to South Dakota residents. Previously, states could tax a business only if it maintained a physical presence in their state, such as a store or warehouse. That was the standard established by the 1992 Supreme Court decision,
Quill Corporation v. North Dakota
, which
Wayfair
overturned.
Wayfair
accomplished what legislative action could not. For years, states have tried to persuade Congress to pass legislation to reverse the
Quill
ruling. However, online sales taxes are generally unpopular among voters, and recent bills like the Marketplace Fairness Act and the Remote Transactions Parity Act could not muster sufficient support.
The South Dakota law endorsed in
Wayfair
sets the threshold for collection of online sales tax which now applies to all states. Tax must be collected by sellers that deliver more than $100,000 worth of goods or services into a state annually, or engage in 200 or more separate transactions for deliveries into that state over the course of a calendar year.
In response to Wayfair, on August 14, 2018, the New Jersey Division of Taxation announced that effective October 1, 2018, remote sellers meeting similar thresholds (over $100,000 of gross revenue from the sale of tangible personal property, specified digital property, or services into New Jersey or 200 or more separate transactions for delivery into New Jersey in the prior or current calendar year) must register, collect, and remit New Jersey sales tax. Additionally, New Jersey lawmakers have already passed sales and use tax economic nexus legislation (Assembly Bill 4261), which awaits Governor Murphy’s review.
In addition to increasing state sales tax collections, the impact of
Wayfair
may be to level the playing field somewhat between online and bricks-and-mortar retailers. By allowing states to compel online retailers to charge sales tax, even when sellers have no physical presence in a state, retailers with a physical location will no longer be at such a competitive disadvantage. Now, all internet-based businesses will have to calculate, collect and remit sales taxes to whichever state a buyer lives. While large online concerns such as Amazon can absorb these high compliance costs, some smaller internet-based businesses may not survive.
If you have any questions about this recent decision and how it impacts your business, please don't hesitate to contact us.
