Physical Presence and Sales Tax Nexus

Physical Presence No Longer A Requirement for Sales Tax Nexus?

On June 21, 2018, the US Supreme Court ruled in favor of South Dakota in South Dakota vs. Wayfair, Inc., thereby eliminating the need for a vendor to have physical presence within the State to create nexus.

The State of South Dakota enacted a provision that permitted the State to require an entity to collect / remit sales tax if they had a minimum of $100,000 in sales or 200 individual transactions within the State. This legislation was in direct conflict with the 1992 Quill Corp. vs. North Dakota case, which required physical nexus within a state to require sales tax collection.

Based upon this ruling, e-commerce companies and sellers using platforms, such as Amazon.com must now comply with South Dakota’s law. Several other states had followed in South Dakota’s footsteps with similar legislation or conversely with onerous use tax reporting requirements, unless the entity voluntarily elected to collect / remit sales tax. This ruling provided merit to any questionable legislation in these states.

Online retailers should be prepared for similar legislation to be enacted in many other states and need to be prepared to comply. Unfortunately, many questions remain as the case empowered the states substantial control to determine retroactivity and nexus creating minimum thresholds.

Brady Ware will be providing more information on this dramatic shift in the sales tax regime once our State and Local Tax Practice has reviewed the decision in depth, please contact:

Kiersten Gaudet
937-913-2554 or kgaudet@bradyware.com

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