Supreme Court Rules States Can Collect Online Sales Tax

In a 5-4 decision today, the Supreme Court turned the sales tax world on its head by overturning South Dakota v. Wayfair. The decision reverses decades of history related to sales tax nexus and a retailer’s obligation to collect and remit tax when it sold its products across state lines. Disavowing the old physical presence standard established by Quill, the high court’s ruling now opens the door for states to impose an economic nexus standard when it comes to sales tax collection responsibilities.

In an attempt to recoup some of the estimated billions of dollars in lost revenue, many states have recently passed laws requiring collection responsibilities on companies with a certain amount of sales or transactions in the state – even if the companies have no physical presence in the state. However, because the Supreme Court had previously ruled a physical presence was required in order to impose a collection requirement, many of these states have not actively enforced these laws. Now, with the Wayfair decision, states are likely reassessing how laws can be crafted to take advantage of this new sales tax standard.

Companies that sell goods in multiple states should be aware: The sales tax landscape is changing. And even without a physical presence in a state, collection responsibility may now exist.