Last Thursday, June 21, 2018, the U.S. Supreme Court overturned their previous ruling requiring retailers to have a physical presence in a state for them to force the collection of sales tax. In the decision South Dakota v. Wayfair, Inc., et al., the Supreme Court ruled that the new South Dakota law was lawful and could be enforced going forward. The South Dakota law will now require online retailers with over $100,000 in sales or 200 individual transactions in a given year to collect South Dakota sales tax on their sales.
The rule before last Thursday’s Supreme Court decision was that the retailer had to have a physical presence in a state for them to force the collection of sales tax. The Justices believed this would create a disincentive for online retailers to invest in physical locations in other states and might create a judicial tax shelter for them to operate from giving them a competitive advantage over tax collecting brick and mortar stores.
Before the most recent court decision, the question of whether or not online sales were subject to sales tax was never in question. The question was if states could force online retailers to collect the tax instead of the state going after the purchases for the tax. Most individuals either thought the sale was exempt due to being online or did not care, which has resulted in substantially all online sales to individual consumers not getting taxed.
What this means in the short term for online retailers is they must now start collecting sales tax on sales to South Dakota residences if they meet the criteria of gross sales or number of transactions. Other states, including Kentucky, have already adopted the same requirements and others will most likely follow. This ruling can effect even small sellers in that each state will have its own laws so everyone will need to check with the states they are selling in to make sure they are in compliance.
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