In June, the U.S. Supreme Court ruled to overturn what many considered an outdated provision in state sales tax laws. The South Dakota v. Wayfair ruling means that states can now require out-of-state retailers to charge sales tax on online purchases, regardless of where the company has a physical presence. The majority opinion, written by Justice Anthony Kennedy, overturned what some considered an unfair advantage for companies selling online versus in brick and mortar stores. This ruling has massive implications for fledgling consumer electronic businesses selling online and creates a compliance burden for out-of-state ecommerce companies. Brands selling online must take proper measures to insulate themselves or face additional scrutiny from tax auditors and other potential repercussions.
With this ruling, states can now go through and reassert their nexus standards either by enforcing previously passed laws or passing new ones as their legislative sessions resume. This decision removes the previous nexus assertions that focused on companies’ physical location when determining sales tax requirements, and grants states the ability to enforce out-of-state ecommerce retailers to collect sales tax. While approximately thirteen states have current laws on the books that will allow them to start collecting this new tax revenue very shortly, most have to enact new laws before collecting the tax, so it will take some time before the full impact of this law is realized. With many states in need of financial resources to help fund local projects, it is likely all states will adopt some level of this new sales tax standard, which will require out-of-state sellers to register and administer it correctly. However, due to the level of uncertainty, the situation remains fluid, and requires close monitoring by all organizations, big or small, who sell online.
This ruling also goes beyond our shores – just as any company that does business with European residents needs to comply with the General Data Protection Regulation (GDPR), regardless of geographic location, these changes to U.S. sales tax laws apply to companies all over the world. If a company sells to U.S. customers, they need to review the applicability of these new tax laws. This is just another step in the nuances associated with maintaining tax and regulatory compliance around the globe, causing massive headaches for brands.