The U.S. Supreme Court recently voted five to four in favor of the State of South Dakota in their lawsuit against internet home goods retailer, Wayfair. Their decision effectively overturns prior cases that allowed internet and mail order catalog businesses to make sales without charging sales tax in states in which they did not have a physical presence (e.g. a sales force or physical property).
One of the main points of the court’s decision is that the rulings in prior cases don’t align with modern e-commerce and ignore the effects of virtual connections to a state. The South Dakota v. Wayfair decision opens the door for states to enact laws that require internet or otherwise remote sellers to collect and remit sales or use tax without a physical presence. While South Dakota requires $100,000 of goods delivered or 200 transactions in order to be subject to sales tax requirements, there aren’t currently any bright line tests defined to establish substantial nexus without a physical presence.
It’s likely that this will lead to additional cases as states begin to roll out their own definitions and requirements. While we can expect big changes when it comes to how internet sales are taxed, it remains to be seen what those changes will look like, so stay tuned.