The recent Supreme Court decision in South Dakota v. Wayfair has far-reaching implications for sales tax collection in the U.S. Join Skoda Minotti’s Mary Jo Dolson, CPA, for a webinar discussing this recent Supreme Court decision that overturned the long-standing physical presence standard established in Quill v. North Dakota and its potential impact on your business. We will discuss the current standard for sales tax nexus in various states, as well as what your business should be doing now to start collecting sales tax.

1. Wayfair and the Changing
Sales Tax Landscape
Mary Jo Dolson, CPA
July 19, 2018

2. 2
Agenda
• History of the physical presence requirement
• Background on Wayfair
• Supreme Court decision
• Impact of the decision
• Steps to take as a result of the decision
• Not just online businesses impacted
• Impact on international businesses

3. 3
Polling Question #1
What do you think the impact of Wayfair will be to your
business?
A. Significant impact
B. No impact
C. Not sure

4. 4
Physical Presence Standard
• National Bellas Hess
 First case addressing physical presence standard
 Decided in 1967
• Quill v. North Dakota
 Case most referred to when discussing physical presence for
sales tax
 Decided early 1992

5. 5
Quill
• Sold office equipment and stationary via mail order to
customers in North Dakota
• No physical presence in North Dakota
• The issue before the Court was whether a physical
presence was necessary to create a sales tax
requirement in a state
• The Court decided that a physical presence was required

6. 6
Direct Marketing Association
• Case decided by the Supreme Court in 2015
• In deciding the case, Justice Kennedy’s concurring opinion
indicated that the states should find a case for the Court to
reexamine Quill.
• The states started plotting such a case.

7. 7
South Dakota
• March 2016: South Dakota enacted the
“economic nexus’ standard that the
Supreme Court examined in Wayfair.
• The standard is $100,000 in South Dakota
sales or 200 transactions.
• South Dakota went after Wayfair, Overstock and NewEgg for not
complying with the new “economic nexus” standard.
• South Dakota is unique in how swiftly a case can make its way through
the court system and to the Supreme Court

8. 8
South Dakota’s Arguments
• States, local brick-and-mortar
stores and interstate commerce
are harmed (i.e., lost revenue).
• Brick-and-mortar stores are discriminated
against (i.e., higher price than online retailers).
• The physical presence standard is obsolete in the internet economy.
• There is little burden on vendors.

9. 9
Wayfair’s Arguments
• States receive 75% - 80% of all remote sales tax, and uncollected
amount is declining.
• 19 of top 20 internet retailers collect tax in most or all states.
• Overturning Quill would be a huge burden on businesses.
• Retroactive liability would be crippling.
• States need to simplify before Quill is reexamined or overturned.
• SSUTA: 23 signatory states but only 1/3 of population.

10. 10
Polling Question #2
Do you think the Supreme Court got it right this time in South
Dakota v. Wayfair?
A. Yes
B. No
C. Not sure

11. 11
Supreme Court Action
• Granted cert January 2018
• Oral arguments heard April 17, 2018
• Decision rendered June 21, 2018
• The decision went 5-4 in favor of South Dakota
 “Isn’t the problem not Quill, but the fact that you don’t have a mechanism to
collect from consumers?”
- Justice Sotomayor
 In dissenting opinion Justice Roberts indicated “Yes we got Quill wrong, but
it is up to Congress to enact a fix to the physical nexus standard.”

12. 12
Supreme Court Action
• Decided South Dakota’s “economic nexus” standard was sufficient
 Prior to Wayfair, business was required to have a physical presence
‒ Employee
‒ Employee visits
‒ Attend trade shows
‒ Property and/or inventory in state
 Post Wayfair “economic nexus”
‒ Sufficient amount of sales, or…
‒ Number of transactions

13. 13
What Happens Now?
• South Dakota Case was remanded to South Dakota Supreme Court.
• Numerous states have similar “economic nexus’ standards in place:
$100,000 in sales or 200 transactions.
• So the question is where do we go from here?
 Are the changes retroactive?
 What about use tax reporting?
 Will congress do anything?

14. 14
Polling Question #3
Your business operates in South Dakota, you have $80,000 of
exempt sales and $15,000 in taxable sales to customers in
South Dakota. South Dakota has an economic nexus standard
for sales tax - $100,000 in South Dakota sales or 200
transactions in South Dakota. Is your business required to
comply with South Dakota’s sales tax laws?
A. Yes
B. No
C. Not sure

15. 15
Wayfair Decision
• Numerous states already have an “economic nexus” standard as part of
their state statute.
• Some states acted before South Dakota and some since anticipating the
Supreme Court Decision.
• Questions that need to be addressed:
 If part of state statute prior to Wayfair, how will the states handle
prospectively or retroactively?
 How do you determine sales for the economic nexus standard?
‒ Is it taxable sales or all sales?
‒ What if everything I sell is exempt?
 What is meant by a transaction?
‒ Entire invoice or each line item?

16. 16
Prospective or
Retroactive Treatment
• States submitted briefs during the Wayfair case indicating
they would enforce prospectively.
• Supreme Court in rendering its decision noted South
Dakota’s prospective treatment.

17. 17
Economic Nexus Threshold
• South Dakota’s is $100,000 in sales or 200 transactions.
• The majority of the states with an economic nexus standard have a
similar or higher standard.
• It is believed the standards would hold up and can be enforced.
• States are moving forward with enforcement.
• We are still awaiting guidance on effective dates.

18. 18
Economic Nexus Threshold
What is meant by sales
• $100,000 in sales or $250,000 in sales
 This is all sales into a particular state
 States are utilizing the following standards:
‒ Previous calendar year
‒ Current calendar year
‒ Rolling 12 months

19. 19
Economic Nexus Threshold
• What is meant by transactions?
 Commonly it is 200 transactions
‒ Generally, this is all transactions
into a state.
‒ It is generally not line items on
an invoice, but the entire invoice
counts as one transaction.
‒ Does not matter if the
transaction is taxable or non-
taxable.

20. 20
Polling Question #4
After Wayfair, do you think Congress should intervene and
enact legislation reinstating the physical presence standard for
sales tax?
A. Yes
B. No
C. Not sure

21. 21
Economic Nexus Threshold
• States currently with an economic nexus standard:
 AL, CT, GA, HI, IL, IN, IA, KY, LA, ME, MA, MI, MN, MS, NJ, NM,
ND, OH, OK, PA, RI, SD, TN, VT, WA, WI, WY

22. 22
Economic Nexus Threshold
• Interesting state responses:
 West Virginia – opposed to requiring remote sellers to collect WV
tax.
 New Hampshire – does not have a sales tax and upset that its small
vendors will have to collect sales tax in other states.
 South Dakota – on hold until South Dakota Supreme Court hears the
remanded case.
 Louisiana – legislation was drafted same as South Dakota but
statute indicates it is effective on the date the Supreme Court finds
the South Dakota statute constitutional.
 Indiana – offering amnesty if a remote seller utilizing Amazon FBA

23. 23
Economic Nexus Threshold
• Kentucky – 7/1/18 effective date and not providing any
true reprieve. Providing some adjustments if nexus before
this date and need to make some catch up payments.
• Hawaii – 7/1/18
• Vermont – 7/1/18

24. 24
Impact to Businesses
• Online retailers
• Manufacturers
• Service provider
• International businesses

25. 25
Next Steps
• Determine states with
economic nexus
• Determine taxability of
product and/or service
currently providing
• Determine proper rate for
collection
• Registration with state(s)
• Sales tax compliance

26. 26
Other State Requirements
• Use tax reporting
• Marketplace provider collection
• Amazon and the states
• Click-through nexus
• Possible shift in use tax reporting
• Shift in audit approaches

27. 27
Congressional Reaction
• Marketplace Fairness Act
• Stop Taxing Our Potential Act of 2018

28. 28
Polling Question #5
In light of Wayfair, what is the most daunting task facing your
business?
A. Determining states with nexus
B. Determining which products you sell are taxable
C. Securing required exemption certificates
D. Determining the proper sales tax rate to charge

29. 29
Other Concerns
• ASC 450/FAS 5
• Are there potential issues that need to be addressed?
• What if a state decides to go retroactive and not
prospective?
• Any impact to reserves?

30. 30
Other Concerns
• State Income Tax Nexus
 Will more states adopt economic nexus standards?
 Will states try to stretch standards already in place?
?

31. 31
Conclusion
• Determine states with economic nexus
• Determine taxability of product and/or service currently providing
• Update exemption certificates
• Sales tax compliance
• Future compliance of new legislation
• Monitoring sales for thresholds
• Updating rates throughout year
• Can billing systems handle the change?

32. 32
Contact Me
Mary Jo Dolson, CPA
Partner
(440) 449-6800
mdolson@skodaminotti.com