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Supreme Court Overturns Quill: Remote Sellers Will have to Collect More Taxes

Tax Law Alert Dawn R. Gabel

The Supreme Court issued a landmark decision in the case of South Dakota v. Wayfair on June 21. Since 1967, remote vendors without a physical presence in a state could not be forced to collect sales tax, based on two Supreme Court cases, one written in 1967 and the other a few decades later in 1992. That rule changed, as the U.S. Supreme Court held that its 1992 decision in Quill Corp. v. North Dakota was "unsound and incorrect." In Wayfair, the Court upheld a South Dakota law that requires remote vendors to collect tax if they have either 200 transactions or sales exceeding $100,000 in the state in a year. Under the South Dakota law, no physical presence is required.

The Court's historic decision will have a tremendous effect on sales and use tax collection responsibilities for remote vendors. At least seven states have enacted laws that mirror South Dakota's legislation. And there are at least five more states with pending South Dakota-type legislation anticipating this decision. Businesses should also be aware that many states have a variety of different sales tax collection laws that do not require physical presence. Legal challenges to these laws in many states were put on holding pending the Supreme Court decision in Wayfair.

The Court held that South Dakota's law did not violate the Commerce Clause because the state adopted the Streamlined Sales and Use Tax Agreement, it did not apply the collection responsibility retroactively, and provided relief to small vendors with few sales (those with fewer than 200 transactions or $100,000).

There will be more developments on the sales tax front as both states and taxpayers analyze the ramifications of this significant decision. Currently 31 states have some form of internet vendor collection law. And there are several bills before the US Congress that could change the landscape. But for now, it appears that remote vendors will likely face more sales tax collection requirements.