SALT Alert: U.S. Supreme Court Overturns Physical Presence Rule for Out-of-State Sellers

By Steven P. Bryde |  James (Jay) M. Brower, Jr  |  June 27, 2018

On June 21, 2018, the U.S. Supreme Court overturned a longstanding court precedent that applied to the collection of sales tax from online and other remote retailers. In South Dakota v. Wayfair, Inc. et al, the Court replaced the “physical presence” rule with a new standard for determining when states can impose a sales tax collection responsibility on out-of-state sellers of taxable goods and services.

Since 1967, a vendor selling taxable goods or services to customers only had to collect and remit sales tax in those states in which the company had a physical presence (i.e., sales tax nexus). In Wayfair, the U.S. Supreme Court overturned its decisions in both National Bellas Hess (1967) and Quill (1992)  by abandoning the physical presence standard it had previously set-forth in those cases, finding that it was flawed on several fronts.

The Court determined that the threshold for a state to exercise its taxing power is now “substantial nexus” in the state. While the Court did not provide a “bright line” test for the minimum dollar amount or number of transactions that would satisfy the substantial nexus standard, it found that South Dakota’s threshold of requiring sellers with more than $100,000 in annual sales of goods or services or 200 or more separate transactions in the state to collect its tax is “clearly sufficient” to constitute substantial nexus.

Twenty different states have already set forth sales tax laws with an economic nexus-type threshold that is similar, if not identical, to South Dakota’s. The Wayfair decision will most likely cause more states to enact similar thresholds in the coming months and years.

To learn about the impact of this change on the states in which you do business and to identify possible areas of exposure affecting your company, please contact a member of our Marks Paneth Tax Services Group.

About Steven P. Bryde

Steven P. Bryde Linkedin Icon

Steven P. Bryde, JD, is a Senior Consultant in the Tax Practice at Marks Paneth LLP. He specializes in state and local taxation for corporations and flow-thru entities in a cross section of industries as well as for individuals. With more than 30 years of tax experience, Mr. Bryde has spent nearly his entire career in public accounting. Over the years, he has held positions at both global and regional accounting firms. Among his accomplishments... READ MORE +

About James (Jay) M. Brower, Jr

James (Jay) M. Brower, Jr

Jay Brower, CPA, is a Partner of corporate and individual tax compliance and research services at Marks Paneth, LLP. He has more than 20 years of professional experience at the federal, state, and local levels. Mr. Brower's duties also include the development of tax planning and implementation strategies, as well as education and development of the firm's professionals. Mr. Brower provides tax planning and compliance services to clients in the manufacturing, commercial fishing, telecommunications, professional... READ MORE +

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