The U.S. Supreme Court, in its 2018 South Dakota v. Wayfair decision, determined businesses who simply sell into a state can be required to comply with sales tax laws of that state. 

Below are FAQs from our state and local tax pros to help break down what this decision means for remote sellers moving forward.  

What was the old sales tax rule?

In 1992, the U.S. Supreme Court decided the Constitution prevented states from requiring businesses to collect sales tax if the business didn’t have a substantial connection to the state.

Essentially, businesses only had to collect sales tax if they had a physical presence in a state – like an office or warehouse. If they didn’t have a physical presence, they could sell products to consumers without sales tax. They didn’t have to follow state and local tax codes.

What changed?

All states that impose sales tax now require online retailers to charge sales tax to consumers even if they don’t have a physical presence in a state.

Many states follow the thresholds set in the Wayfair decision, so a good rule of thumb is to question your obligations if you have more than $100,000 of gross sales to a state in a year, or more than 200 transactions with that state in a year. Some states, like California and Texas, use higher thresholds. Other states have refined their rules to eliminate the transaction threshold or only count taxable sales in the tests.

What does this mean for consumers?

If you’re shopping online, you probably have seen a lot more businesses charge you tax. In fact, large online retailers, like Amazon, eBay and Walmart, are required to collect and remit sales tax on every sale that runs through their platform – even when they aren’t the seller.

 What should I do if I’m an online retailer?

In addition to complying with sales tax laws everywhere you have a physical presence, you’ll also have to comply in states and cities you may never visit, if you cross their thresholds. 

Do you have any tips to help mitigate our state and local tax exposure? 

To stay on top of your state and local tax obligations, keep these points in mind:

1. Make sure you have a system to track your sales on a ship-to location.
2. Have a plan to monitor your sales by state so you can identify when you might cross a threshold.
3. Understand where your business has a physical presence. This can include where your employees work from home or travel to, and where you have offices, factories, warehouses or inventory (including consigned or a third-party logistics facility).
4. Seek help if you think you have already crossed a threshold and may have some exposure. There are a variety of ways to proceed, and some options are only available when you aren’t yet registered or filing taxes.
5. Collect exemption certificates from your customers, if they apply.
6. If you receive any state notices regarding sales and use tax nexus, seek immediate assistance from a state and local tax advisor. 

Here to Guide You

Unfortunately, the world of sales tax gets trickier every day, so the best time to address your sales tax plan is today. If you are ready to start planning for your state and local tax requirements, contact us below.