If you sell your products online in a state in which you do not have a physical presence, a decision expected to be rendered by the US Supreme Court in the coming months may dramatically change your business.
Since 1992, the rule of the land has been that if you do not have a physical presence in a state that you sell products to (nexus), you do not have to charge or collect sales tax from your customers. With the explosion of internet sales, states across the country have been missing out on significant revenue from such sales tax collections. The fight that will decide this issue for the future is now before the Supreme Court (South Dakota vs. Wayfair).
We fully expect the Supreme Court to rule in favor of South Dakota, with several Justices indicating concerns about the original decision (Quill) that established the nexus rule. Justice Kennedy has said that the original case (Quill) that created the nexus issue was “questionable even when decided and (Quill) now harms states to a degree far greater than could have been anticipated earlier. It should be left in place only if a powerful showing can be made that its rationale is still correct.” Reversal of Quill would open the door for states to implement policies to require collection and reporting of sales tax to any consumer in any state, regardless of whether the seller has a physical presence in that state.
Here’s what you should know now – before the decision is announced:
- It is likely that once the decision is announced, many states will implement the new laws on an accelerated timetable. Some states already have rules and guidelines in place. Your business needs to be prepared to understand each state’s sales tax laws and have a strategy and plan in place to begin collecting and reporting in accordance with those laws.
- Not every online seller will be required to comply. Compliance will likely be based on a minimum revenue of the online seller, but this may also vary from state to state. Small businesses will not be required to comply, but where the standard will be for that exemption is up in the air.
Tips for Planning and How We Can Help
- The sales tax laws from state to state are already complex and this new ruling will only increase that complexity as well as the chance for costly noncompliance. It is important to bring a knowledgeable sales tax advisor on board who understands state tax laws and has worked extensively across the US on sales tax matters.
- Business owners should develop an implementation strategy that leverages the information and guidance from Tip #1 and further lays out a step-by-step plan for sales tax compliance for your business.
- Bring your accounting staff up to date on the pending decision and the ramifications it may have on the business. It will be a team effort to make sure your accounting systems are up to date and capable of handling this added function.
We will be issuing updates and helpful tips for online internet sales tax matters frequently over the coming months. Regardless of the state your business is in, Smith & Howard’s Sales & Use Tax Team has experience and knowledge of your state’s current and emerging requirements – as well as those of states you sell to. Please call Tim Howe at 404-874-6244 or fill out the contact form below to discuss your needs with him and to see if we can help you.