SCOTUS Overturns Quill: Out-of-State Retailers Impacted

June 2018 | Article

The U.S. Supreme Court has opened the door for states to collect sales taxes on most internet sales. In its 5-4 Wayfair decision, the Court ruled in favor of South Dakota’s law requiring certain internet sellers with no physical presence in the state to collect South Dakota sales tax.

The ruling overturns the Court’s 1992 Quill decision that barred states from requiring sales tax collection from sellers with no physical presence in the state. With the rise of internet sales, states have pushed back against the Quill rule with some success. Now, the physical presence requirement is gone.

This ruling won’t immediately require all internet sellers to collect sales tax. Many states will need to update their sales tax laws in light of Wayfair. The new decision doesn’t give states unlimited ability to tax remote sales.

The decision does however require all businesses with out-of-state sales to immediately revisit their collection practices. Taxpayers who have relied on Quill as a reason to not collect sales taxes will need to change course. Many states already have laws similar to the South Dakota law upheld in Wayfair, and taxpayers will either need to comply or have a basis for non-compliance, which may prove difficult to do.

The Wayfair ruling doesn’t only affect internet sellers, it also makes it easier for states to collect sales tax on any business that has customers outside their home states.

We can expect most states to enact laws based on the South Dakota law covered in Wayfair the next time their legislatures meet.

Eide Bailly can help taxpayers adapt to the new world of sales tax collection. Contact your Eide Bailly professional for more information.

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