In June last year the US Supreme Court ruled in South Dakota vs. Wayfair Inc. case, that states can require out-of-state retailers to collect sales taxes from in-state customers, even if the retailers have no physical presence in the state. This was a major change for businesses small and large who conduct business online. No longer will there be the advantage of bypassing sales tax collection by selling online and not having a physical presence in a state. Rather, if a remote seller generates revenue and/or sales in a state, they may be required to collect a state sales tax. This decision has led to many questions about what might be the impact on all remote online businesses regarding responsibilities and requirements regarding state sales tax, and if all states are requiring this new obligation.

1. CT CorporationWolters Kluwer
CT CorporationWolters Kluwer
The Wayfair Decision
& Small Businesses Selling Online
–The Taxman Cometh
Presented by
Tamara Kling, Esq.
John Randazzo

2. CT CorporationWolters Kluwer
Agenda
• What is the significance of the Wayfair decision?
– The Supreme Court ruling
• Impact on online/remote sellers
– Small business concerns
• How can CT help?
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Sales Tax Requirements
• Obligation to pay on buyer
• Obligation to collect/remit generally on seller
• Simple if traditional brick and mortar transaction
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What is Wayfair?
• South Dakota v. Wayfair, Inc., Supreme Court case, 6/21/18
• The Court held states can require out of state online retailers to collect
and remit sales taxes from sales made to customers in the state
• Old rule requiring sellers have an in state “physical presence” no longer
applies
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The Law Before Wayfair
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What Was the Law Before Wayfair?
• In 1967, S Ct held out of state sellers could be required to collect/remit
taxes if they had a physical presence in the state
• In 1977, S CT created test to determine constitutionality of sales tax
– Required “significant nexus” between taxed activity and a state
– 1992, requirement reaffirmed
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The Law Meant…
• A seller, with no physical presence in a state, could not be required
to collect that state’s sales taxes
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What Does South Dakota’s
Sales Tax Law Say?
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South Dakota’s Sales Tax Law
• “An Act to Provide for the Collection of Sales Taxes from Certain
Remote Sellers”
• Required out of state sellers to collect/remit taxes from SD buyers if;
– Sales in SD exceed $100,000 or
– Seller has 200+ transactions in SD
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South Dakota’s Sales Tax Law (cont.)
• Requires only an “economic nexus” between the seller and the state
• Does not require physical presence to trigger tax responsibilities
• SD went to court to enforce this law
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Eventually the Supreme
Court Agreed to Hear
the Case
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Road to the Supreme Court
• SD law authorized declaratory judgment
• SD sued Wayfair asking court to require sellers to follow the law
• Lower courts struck down law based on The Supreme Court’s physical
nexus requirement
• The Court heard the case, overruled the lower courts, and found SD law
Constitutional
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Why Did the Supreme Court
Uphold South Dakota’s Sales Tax Law?
• Times and business practices changed
• Concern states were losing revenue
• Highly critical of the physical nexus requirement
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Impact of Wayfair
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Winners
• States – may require online/remote sellers to collect/remit sales taxes
– Increase state revenue
– SD est. loss 48-58M annually
– Nationwide 8-33B annually
• Brick and mortar stores –Internet sellers lose tax free internet advantage
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And Losers
• Remote/Internet sellers – required to collect/remit taxes
– Lose “tax free” advantage
• Consumers – required to pay sales taxes on internet purchases
– Lose “tax free” advantage
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Have Other States Enacted
South Dakota-like Sales Tax Laws?
• Some states had such laws on the books, effective if SD successful
• Many already effective
• Retroactive collection prohibited in SD
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How Do Other States Compare
to the South Dakota Sales Tax Laws?
• Each State has its own set of laws
• As of 1/1/19, these 33 states have enacted “economic nexus laws”
• More to likely to join
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States Define Economic Nexus Differently
• Half have thresholds similar to SD
• Others states different threshold amounts
• Some require both a minimum $ amount and number of transactions
• Some require additional activities
• Definition of taxable property or sales
• Must consult the laws of each state
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Marketplace Facilitators
• A few states require “marketplace facilitators” with an economic nexus to
collect and remit sales tax
• Contracts with 3d party vendors, provides online marketplace
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Do Remote Sellers
Need a Sales Tax License?
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Wayfair Bottom Line
• Remote sellers with no physical presence in a state
• Where they sell their goods or products
• Need a license
– If state has economic nexus requirement and,
– Threshold requirements met, and
 The state requires collect/remit sales tax
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What Should Remote Sellers Do Now?
• Track sales
– Location of customers and deliveries
• Know total amount of sales and deliveries, each state, each year
• Obtain sales tax license if collecting sales taxes
• Charge/Collect/Remit sales tax to the state as required by the state’s law
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How CT Can Help
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Research
Initial Filings Renewal Filings
Path to
Compliance

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CT CorporationWolters Kluwer
Thank You For Attending
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The Wayfair Decision
& Small Businesses Selling Online
–The Taxman Cometh