On June 21, 2018, the United States Supreme Court fundamentally changed the rules for collection of sales tax by Internet-based retailers. In its decision 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 ruling overturns the Court’s 1992 decision in Quill Corporation v. North Dakota. The Quill case prohibited states from requiring a business to collect sales tax unless the business had a physical presence in the state.
For many years, states argued that they were losing a lot of 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. In that case, the tax generally is called use tax rather than sales tax – and customers often simply did not pay use tax to the state.
If you are selling on the Internet to states around the country, you now will need to be aware of which states have enacted laws requiring the collection of sales tax by online sellers. In order for a given state to require you to collect sales tax, that state must pass a law allowing it to do so.
Many states already have enacted new laws. Often, these laws refer to online sellers as “remote sellers.” In most cases, if a remote seller has either:
the law requires the seller to collect and pay sales tax. In addition, the seller must register with the state’s taxing authority.
The date on which a remote seller must start collecting sales tax varies from state to state. Under some laws, sellers would be required to collect sales tax retroactively. For an overview of the status of each state’s remote seller sales tax laws, check out this chart.
However, the status of the new state laws remains uncertain. As of late 2018, there is proposed federal legislation regarding remote seller sales tax that, if passed, could invalidate or require changes to the new laws in many states.
Regardless of what happens with the proposed federal legislation, the Supreme Court's decision in the Wayfair case is expected to mean the collection of substantially more money for states from sales tax. And for remote sellers, the decision may mean they will need sales tax software to keep up to date on which states and localities collect sales tax and at what rate.