In what is sure to be regarded as a landmark decision for state and local taxation, the United States Supreme Court ruled today that states can levy sales taxes on purchases made through out-of-state online retailers, dealing a heavy blow to online retailers throughout the United States as well as foreign based internet retailers.
Thursday’s very close 5-4 decision overturns a 1992 Supreme Court ruling, known as Quill, that prevented states from imposing sales taxes on catalog and mail-order companies that did not have a physical presence in the state (physical presence included an office, warehouse, employees et…). That ruling came just prior to the internet boom, and has enabled online retailers to avoid collecting sales taxes on purchases on their websites.
Although the case decided today addresses the South Dakota law requiring online retailer Wayfair to collect sales tax regardless of whether it has a physical presence there, the Supreme Court ruling has significant implications nationwide. In short, this decision will impact all companies that sell over the internet.
Currently, over thirty state have some sort of rule that taxes internet sellers without physical presence. Some of those statutes were to take affect when the Supreme Court abrogated the requirement that a vendor have physical presence in order to be subject to sales taxation. That day has come and companies must now scramble to come into compliance with state sales taxation.
We are available to help you navigate this new landscape in state tax law and how it will impact you.
Faith Gorman, Director of State and Local Taxation, can be contacted at FGorman@dbllp.com and at 561-886-5286.