Interstate Sales Tax

One of the most challenging aspects can be figuring out which sales taxes apply to individual sales, especially when selling to out-of-state customers.

• On June 21, 2018, the U.S. Supreme Court fundamentally changed the rules for collection of sales tax by Internet-based retailers. In South Dakota v. Wayfair Inc., the Court effectively stated that individual states can require online sellers to collect state sales tax on their sales. This rule overturns the Court’s 1992 decision in Quill Corporation v. North Dakota, which prohibited states from requiring a business to collect sales tax unless the business had a physical presence in the state.
• This decision has led to 43 states and the District of Columbia requiring remote sales tax collection.
• For many years, states argued that they were losing money by not being able to collect sales tax on Internet sales to customers located in their states. Formerly the burden was on the customer rather than the seller to pay the relevant tax, and customers often simply did not pay use tax to the state.
• For an online small retailer, the decision may mean they will need sales tax software to keep them up- to-date on which states and localities collect sales tax and at what rate –making compliance burdensome and complex.
• Compounding matters, the Tax Injunction Act (1938) prohibits most state tax cases from being heard in federal courts, meaning Small Businesses effectively have no recourse in a tax case from another state.