Wayfair Decision Could Transform Sales Tax

Back to Updates (Home)


In a 5 to 4 decision on Thursday, the US Supreme Court overruled its own previous precedents and opened the door for states to levy sales taxes on sale of goods and services regardless of whether the seller has a physical presence in the state.


Over a quarter-century ago, the Supreme Court held in the Quill decision that sellers were not required to collect sales tax on sales made to a state unless it had have employees or other agents located there, or owned or leased real estate, inventory, or other assets in the state. If none of these factors were present, sales made remotely (such as by phone or internet) and shipped into the state by common carrier did not require the seller to collect sales tax.


South Dakota v. Wayfair now lets states require that sales tax be collected on the basis of substantial nexus, rather than physical presence. Substantial nexus can be achieved with a sufficient amount of economic activity alone. South Dakota's law requires out-of-state retailers such as Wayfair to collect sales tax if during a year it either collects more than $100,000 in revenue, or completes more than 200 transactions, from South Dakota customers.


While the Supreme Court ruled that these levels of activity in South Dakota's laws were sufficient to subject Wayfair's sales to its sales tax, it did not establish them as a threshold requirement. It is expected that in the wake of this decision, other states will amend their sales tax laws to begin levying tax on levels of sales at least in the amounts in the South Dakota statute, and possibly even lower.

Back to Updates (Home)