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BHBM Tax Law Alert 6/22/2018


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FEDERAL TAX LAW UPDATE

Internet Retailers Can Be Required to Collect Sales Taxes in States Where They Have No Physical Presence

On June 21, 2018, the U.S. Supreme Court ruled on the much anticipated South Dakota v. Wayfair. The case challenged South Dakota’s application of its sales tax to internet retailers who sell into South Dakota but have no property or employees in the state. At issue is the case of Quill Corp. v. North Dakota, initially decided in 1992. In Quill, the court used its dormant commerce clause power to restrict state taxation of interstate commerce and ruled that states could not collect sales taxes from purchases made by their residents from out-of-state vendors that did not have a physical presence within that state.

The court in Wayfair declared the Quill reasoning as “unsound and incorrect” and declared South Dakota’s law as constitutional. This ruling means that e-commerce vendors will now be required to collect and remit sales and use taxes regardless of whether they have property or employees in South Dakota, if certain thresholds are met. The South Dakota Act (S. 106, 2016 Leg. Assembly, 91st Sess. (S. D. 2016) (S. B. 106) at issue, applies only to sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the state and does not apply retroactively. It is expected that other states will attempt to emulate South Dakota’s Act now that it has been approved by the U.S. Supreme Court. For instance, in anticipation of this decision, Louisiana recently passed legislation mirroring the model set forth by South Dakota in the 2018 Second Extraordinary Session (H. B. No. 17, Act No. 5).


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