November 22, 2019
South Dakota vs. Wayfair & Its Effect on Sales Tax Nexus
If you are engaged in business transactions with U.S. customers, you should be aware of sales tax nexus, the new sales and use tax laws in effect as a result of the South Dakota v. Wayfair court case1.
On June 21, 2018, in the case of South Dakota v. Wayfair, the U.S. Supreme Court overturned its longstanding “physical presence nexus” rule and applied the “economic nexus” rule to determine if the taxpayer was liable to collect and remit sales and use tax on sales into the state of South Dakota.
Physical Presence Rule
The physical presence rule prohibited states from requiring entities with no physical presence in that state (i.e. “remote sellers”) to be liable for sales and use taxes on sales into that state. Under this rule, the location of customers is not relevant in determining if the remote seller has a sales and use tax liability in that state.
Economic Nexus Rules
The economic nexus rules require certain remote sellers to collect and remit sales and use tax based on the location of their customers. Even before the decision in Wayfair, a number of U.S. states had already adopted the economic nexus rules but were limited in their application due to the physical presence test.
Summary
Following the court decision, the prior physical presence nexus rule is no longer a barrier to these laws being enforced. Moreover, additional states have already begun adopting their own economic nexus laws.
As a result of these developments, it will be necessary to reevaluate whether your activities in the U.S. give rise to sales and use tax nexus in those states in which you are not currently filing.
If you have questions about the sales tax nexus, please contact a Manning Elliott advisor here.
1 This case did not impact the income tax nexus rules for each state.
This content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.