Sales Tax: South Dakota Wins Wayfair, Now What?

July 2018 | Article

In 2016, South Dakota passed legislation that directly challenged the Supreme Court’s 1992 Quill decision. Quill barred states from requiring sales tax collection from sellers with no physical presence in the state. Last fall, the South Dakota Supreme Court ruled the new S.D. legislation was unconstitutional, which allowed the state of South Dakota to petition the case to be heard by the U.S. Supreme Court.

Last month, the U.S. Supreme Court overturned the original Quill decision. The Wayfair ruling indicates that physical presence is no longer required for a state to impose sales and use tax on a remote seller. This decision impacts nexus, and therefore impacts tax compliance for any organization operating across state borders. The decision will primarily affect remote sellers, including internet retailers, phone order retailers and inbound companies.

The State Impact
South Dakota’s economic nexus standard requires that a business is responsible for collecting South Dakota sales and use tax if they:

  1. have annual sales of $100,000 or more in the state of South Dakota, or
  2. have 200 or more separate transactions in South Dakota.

North Dakota recently announced a similar economic nexus standard that becomes effective this fall. Plus, other states are now considering or currently working on similar economic nexus legislation.

Next Steps
Although operational change will be required for many remote sellers as the Wayfair decision is considered for new legislation by various states, there is no need to take immediate action. There is also no need to start collecting and remitting sales and use tax or registering your business within a state. However, if your business qualifies as a remote seller, here are a few simple steps you can take now to assure you remain in compliance moving forward.

  1. Review your sales by state to understand which states you’re doing business in and what your current thresholds are. If you don’t have this information easily available, consider how to start collecting it.
  2. Complete a nexus review so you know which jurisdictions you’re doing business in and what those filing requirements are.
  3. Talk with your tax advisor to discuss the next steps that make the most sense for your business.

The impact of the recent SCOTUS Wayfair decision will continue to have a ripple effect on businesses and state sales tax compliance. To discuss your specific situation and next steps, contact someone that is well-versed in nexus and the implications of changing legislation. A member of our state and local tax team or your Eide Bailly professional can assist in these matters.

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