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Legal Alert: Physical Presence Not Required for Sales Tax Collection

The United States Supreme Court decided on June 21, 2018, in South Dakota v. Wayfair, that a South Dakota law that requires certain out-of-state vendors to collect and remit sales tax as if the vendor had a physical presence in the State does not violate the Commerce Clause. Under the South Dakota statute, out-of-state vendors are required to collect and remit sale tax if the vendor sells more than $100,000 of goods or services in South Dakota or engages in 200 or more separate transactions for the delivery of goods or services in the State. The South Dakota statute may apply to on-line retailers who have no employees, no real property and no other physical presence in South Dakota so long as they meet the sales or services thresholds. The United States Supreme Court, overruling two prior Supreme Court cases, held that the South Dakota law does not violate the Commerce Clause because the sales tax applies to an activity with a substantial nexus to the taxing state. Under South Dakota law, the required collection of sales tax by out-of-state vendors only applies if the vendor sells a certain quantity of goods or services in the state, and the Court found that to be a substantial nexus because of their “extensive virtual presence.” Businesses should be informed that other states might now enact legislation similar to that of South Dakota to increase sales tax revenue by taxing out-of-state vendors who have no physical presence in states where they sell products or deliver services.

For more information on this or other sales and use tax issues, please contact Margaret Kubicki at (513) 579-6913 or Mark Sims at (513) 579-6966.

KMK Legal Alerts and Blog Posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.

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IRS Circular 230 Disclosure: Unless we have specifically stated to the contrary in writing, any discussion of federal tax issues or submissions in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the United States federal tax laws or (2) promoting, marketing, or recommending to anyone any transaction or matter addressed herein.