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.
For states, this new Supreme Court decision is expected to mean the collection of substantially more money from sales tax.
For you as an Internet retailer, the decision may mean you’ll need sales tax software to keep you up to date on which states and localities collect sales tax and at what rate.
The links below take you to an article on the Internet sales tax rules in each state prior to the Wayfair decision. Some states already had laws, commonly referred to as Amazon Laws, that required larger Internet sellers without a physical presence in the state to collect and pay sales tax under certain circumstances. Other states simply relied on the default Quill rule that you could only collect sales tax on out-of-state sales from retailers who had a physical presence in the state.
As states enact new laws on Internet sales tax rules after the Wayfair decision, we will update the state specific articles below.