Keep Informed

  • Father Kid
  • Sailing
  • Kayak
  • Shaking Hands
  • Sunset
latest news
  • Newsroom
  • Mid-Year Warning on Deducting Business Losses

What the Wayfair Decision Means For You

Last Thursday the US Supreme Court issued a ruling in the South Dakota v Wayfair, Inc. case. In addition to Wayfair, the defendants included popular online retailers Newegg and Overstock. The decision overturns more than 50 years of case law governing how and when retailers are required to collect sales taxes.

The Facts


Prior to last week's Wayfair decision, the Supreme Court had consistently supported the notion that retailers needed to maintain a physical presence in a state in order to be subject to that state's sales tax rules. This subject first arose in the National Bellas Hess decision in 1967 and again in Quill Corp. in 1982.

With the growing influence of the Internet and the rapid rise in online sales, many retailers have relied on these previous decisions and not collected sales tax on sales to out-of-state customers. South Dakota estimated it was losing between $48 - $58 million per year due to online sales. AS one of the few states without an income tax, 60% of South Dakota's budget was funded by sales tax, which was the primary motive for passing legislation in 2016. In the legislation, South Dakota created a "virtual presence" for any retailer who annually delivered more than $100,000 of goods or engaged in 200 or more separate transactions.

When the new legislation was challenged, the South Dakota State Supreme Court ruled it to be unconstitutional. In a 5-4 decision, the US Supreme Court vacated the lower court's decision and remanded for "further proceedings not inconsistent with this opinion". South Dakota is now free to fully implement the legislation.

What Does This Mean to Consumers?


Outside the state of South Dakota, the decision won't impact consumers much; at least not yet. The decision does, however, signal a green light to states to reconsider their sales tax rules and begin a shift towards adopting rules similar to those of South Dakota.

The days of sales tax-free online shopping may be on a countdown towards extinction.

Actually, this should have never become an issue in the first place. Nearly every state has rules for the so-called Use Tax. Use Tax is sort of like the opposite of Sales Tax. Use Tax applies when you purchase an item from out-of-state tax-free, but use the item in your state of residence. In those situations, state law requires the consumer to file a Use Tax Return and essentially pay the sales tax. The problem is Use Tax is difficult to both monitor and administer. South Dakota figured out an easier path by placing the burden on the online retailers.

What Does This Mean to Retail Businesses?


If you are a traditional "stick & mortar" retailer, this is outstanding news. Over time and with execution, the Supreme Court decision will effectively remove the "tax shelter" enjoyed by online retailers.

For an online retailer, the same record keeping and reporting burden of sales tax compliance will have to be dealt with. Immediately, that burden will apply for sales to South Dakota customers if either of the two annual thresholds are met. Other states are likely to follow suit.

Congress may even jump into the fray. Currently there are three bills in Congress addressing the need for a national standard for online sales collection and compliance. In fact, Justice Roberts cited the need for a Congressional fix in his dissenting opinion.

If you have sales tax record keeping and compliance questions, be sure to give us a call.


Contact Us

Loveland

(970) 667-1070
762 W Eisenhower Blvd
Loveland, Colorado 80537

Estes Park

(970) 667-1070
1212 Graves Avenue
Estes Park, Colorado 80517

Katy

(281) 665-7973
21398 Provincial Blvd
Katy, Texas 77450