Sales Tax on Ecommerce – The Rules are Changing

In today’s digital economy, it is common for companies to sell products and services to customers all over the country without even setting foot in any of the states in which their customers reside.  In many cases, by avoiding a “physical presence” in those states, companies have not been subject to the collection and remittance of sales and use tax.

However, the long-held physical presence standard was recently challenged in the United States Supreme Court Case, South Dakota v. Wayfair.  On June 21, 2018, the US Supreme Court ruled in South Dakota’s favor and essentially overturned the physical presence standard by asserting that nexus should be based upon an economic presence standard.  This landmark decision—a precedent that establishes a framework for other states to enact or alter laws concerning taxing internet sales—means that ecommerce businesses could find themselves increasingly subject to collection and remittance of sales and use tax as more states look to establish, implement and enforce their own sales and use tax laws.  (Currently 31 states have laws that tax internet sales.)

While it is likely that states will establish safe harbor thresholds (exempting smaller out-of-state businesses from sales and use tax), the overturning of the physical presence standard and the move towards nexus established by the economic presence standard could have significant implications on many e-commerce businesses.

LSWG is staying on top of this issue and how it could impact our clients.  Want to know more?  Contact Jennifer Clingan, CPA (301.662.9200) or Jennifer Montoya, CPA (301.738.8400) today to find out how this ruling could impact you and your business.