In June 2018 Supreme Court effectively reversed a previous ruling (Quill v. North Dakota, 1992) which prohibited states from requiring on-line retailers, with no physical presence in the state, from collecting and remitting sales tax. The decision in South Dakota v. Wayfair effectively overturned the ruling in the Quill case and now provides that US states may impose a sales tax on internet businesses, even though they don’t have a physical presence (nexus) in those states – “no physical presence required”.
Of course, the law in MD has always required individuals pay MD sales tax on goods purchased on-line regardless as a “use tax” if the on-line seller did not collect the sales tax on the purchase. Now it will be incumbent on the on-line retailer to establish a sales tax account for each state in which they do business, collect the tax from customers, remit the tax to the state and file the required sales tax returns. Because states vary in which goods and services are subject to sales tax, businesses and their tax professionals will need to be versed in a wide variety of state sales tax laws.
It has been argued this will level the playing field so to speak for small businesses with “brick and mortar stores”. The opposite will be the case for small businesses that sell on-line as the new nexus standard will require additional resources to track sales taxes across state lines.
Questions remain as to how individual states will apply the ruling (i.e., retroactively, thresholds, etc.). For example, the South Dakota statute at issue in the Wayfair case allows a “safe harbor” to on-line sellers who transact only limited business in the state (i.e., sales = $100,000 and 200 transaction thresholds). The Comptroller of Maryland has stated his office is now in the process of reviewing the details of the Supreme Court’s decision, and will be communicating with businesses and taxpayers with information regarding implementation and compliance with the Court’s guidance.
The Court’s decision can be accessed below:
The South Dakota v Wayfair decision is at
https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf
For further information please follow the links below:
http://www.baltimoresun.com/news/maryland/politics/bs-md-supreme-court-sales-tax-20180621-story.html
https://www.washingtonpost.com/politics/courts_law/supreme-court-rules-that-states-may-require-online-retailers-to-collect-sales-taxes/2018/06/21/a24e0100-755e-11e8-b4b7-308400242c2e_story.html?utm_term=.d4c2c376cf47
Stay tuned for more information.
