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RINA Alert — August 23, 2018 | Volume 16, Issue 2 | 800.756.2772
The recent 5-4 Supreme Court majority decision that ruled South Dakota can collect sales tax from online retailers with no physical presence in their state, will change the online retail environment for businesses. This ruling reversed the 1992 Quill Corp. v. North Dakota decision, which set the standard that only businesses with physical nexus were required to collect sales tax in a particular state. The Supreme Court decision allows states to pass economic nexus standards, meaning having a certain number of transactions (i.e. 200 transactions) or a dollar value (i.e. $100,000 of sales in a year) creates substantial presence in the state. The businesses would then be required to collect sales tax from customers for a state they haven't stepped foot in. Approximately eighteen states have enacted similar laws, with more on the way.
The retail shopping environment has changed since 1992 with the explosion of internet sales. The 1992 Quill decision allowed companies operating exclusively in the e-commerce environment to not collect sales tax from their customers if they had no physical presence. This created a disadvantage for businesses operating in a physical retail location, that were required to collect sales tax from their customers. The Government Accountability Office has estimated that in 2017 states had lost over $13 billion in taxes that they could not collect due to the increase of online spending in the past twenty-six years.
States have been aggressively going after businesses that they feel should be collecting sales tax from customers. Given this verdict, we will be seeing even more states using the Wayfair decision to collect sales tax from out of state businesses.
If you have sales outside of California and think this verdict may have an impact on your business, please contact your RINA representative.