The commerce landscape has seen major changes in the last 26 years since the United States Supreme Court decided Quill Corp. v. North Dakota; the last groundbreaking sales tax case. Prior to Quill, interstate commerce may have been best known to make use of paper catalogs and telephone calls. The Quill case highlighted a stepping stone in interstate commerce’s technological evolution by pointing to the company’s use of floppy disks.
The last quarter century has seen tremendous growth in interstate commerce thanks largely to email and internet sales. Consequently, we see some commerce laws and interpretations of those laws in a new light today.
This June the United States Supreme Court decided South Dakota v. Wayfair; a landmark case in the world of sales and use taxes. The crux of the case is the allowance of South Dakota to require “remote sellers” to collect and remit sales tax on taxable sales after certain thresholds are surpassed.
A remote seller refers to businesses that sell their product or service to a state without having a physical presence in that state. The sales are typically made using the internet, phone or mail with product sent by shipping service. Before the Wayfair ruling, sellers generally weren’t required to collect and remit sales tax on sales made within a state in which they didn’t have a physical presence.
Turning to the States
South Dakota only requires the collection and remittance of sales taxes by remote sellers with more than $100,000 in sales or at least 200 transactions in South Dakota for the year. Many states are now updating their laws and requirements to conform with the Wayfair ruling. Some states are closely mirroring South Dakota’s approach while other states are using different thresholds and are fine-tuning their laws in other ways.
On July 25, the Minnesota Department of Revenue announced that remote sellers must collect and remit Minnesota sales tax by October 1, 2018. According to Minnesota Statute 297A.66, remote sellers are not required to collect and remit sales taxes to Minnesota until their sales during a period of 12 consecutive months meet either of the following requirements:
• The remote seller ships 100 or more retail sales to Minnesota.
• The remote seller has 10 or more retail sales shipped to Minnesota that total more than $100,000.
Some states require remote sellers to file information reports with the state after certain sales thresholds are surpassed; even when there is not yet a requirement to collect and remit sales taxes. As states change their sales tax collection requirements, information gleaned from the reports will often be used to inform sellers of changes and help the state with enforcement matters.
The following steps are recommended to help you prepare for collecting and remitting sales taxes when required:
Identify the jurisdictions where you have remote sales.
Look up the existing and developing tax laws for remote sellers in those jurisdictions.
Determine whether they will affect how and when you must collect and remit sales tax.
Below are some resources to help you make this determination:
The Streamlined Sales Tax Governing Board’s table of current state tax rates
Department of Revenues updates for remote sellers
Evaluate your systems to determine how to properly source your sales. Changes to your bookkeeping software may be needed to properly track sales by state.
Determine if the states you do business with have notification requirements, and file accordingly.
It’s important to note that the Wayfair decision as it stands is not the last word. First, the United States Supreme Court remanded the case back to the South Dakota Supreme Court for fine-tuning. More importantly, the decision could be greatly affected by subsequent Congressional action.
Congress has had the opportunity to pass a law and set a sales tax standard for the country but instead continues to kick the can down the road. Four bills addressing these key matters of interstate commerce are currently pending but none with great momentum.
At this time, it’s unclear whether the Wayfair decision will make Congress more likely to pass standardizing sales tax legislation. In the meantime, you should consider doing the following:
• Keep tabs on the announcements of states you have remote sales transactions with to confirm the effective date of any changes they may make. In particular, keep an eye on whether any states are going to retroactively apply their economic nexus statutes.
• Consider whether registering for the Streamlined Sales and Use Tax Agreement is right for your company.
• Watch Congress to see if they’ll act on any of the pending legislation.