South Dakota vs Wayfair Inc.
The US has a concept for sales tax purposes called nexus. This varies by state but is generally seen as being a degree of ‘physical presence’ in a state.
These days this is mostly seen as:
· Having a warehouse of their own
· Having stock located in an Amazon (or 3rd party) warehouse
Where a business has nexus in a state, and goods are delivered to customers within that state, sales tax must be collected and remitted to state authorities.
The concept of nexus was established when internet/digital sales were in their infancy and e-commerce was not really a concept. Since then e-commerce has exploded, but under nexus principals, businesses selling online have not had a nexus in many states, meaning that the majority of online sales escape any sales tax charge.
To combat the inequality, South Dakota brought a case against Wayfair Inc which said that even if the supplier had no physical nexus in the classic sense, they should still collect and remit sales tax on online sales, to level the playing field with suppliers who do have a nexus.
As a result of the case and the decision for South Dakota, this paves the way for other states to legislate that out of state suppliers must charge sales tax to consumers based in the state. The supreme court judgement in no way precludes states from looking at the position retrospectively and demanding back-payments from suppliers.
Impact for Business
· Significant compliance burden for e-commerce retailers
· E-commerce retailers will also need to consider data collection, payment methods, software/ERP, filing
· Overseas suppliers will also need to separately consider PE/direct taxes, although there should be a distinction between direct tax/sales tax