• Ghilin Accounting Corp.

Sales Taxes and Out-Of-State Retailers in the U.S.

*This article is provided by KLiCHS, LLP in the U.S.

The United States Supreme Court ruled that states can require out-of-state retailers to collect sales taxes on their transactions, whether or not they have a physical presence in the state, revers­ing a 1992 Supreme Court decision on Quill Corp. v. North Dakota.

Physical Presence & Nexus

In Quill, the Court ascertained that, due to the Interstate Commerce Clause, states could not collect sales taxes from purchases made by their residents from out-of-state retailers that did not have a physical presence within the state. In particular, the Quill decision has been allowing out-of-state retailers including e-commerce business to avoid the regulatory burdens of sales tax.

In Wayfair, the Court pointed out that total interstate sales in 1992 was about $180 million, while last year’s e-commerce sales were more than $453 billion, emphasizing that e-commerce and inter-state sales have great significance in the dynamics of US economy. In addition, the Court stated that in Quill, out-of-state retailers that would decide to limit their physical presence in a state and still sell goods to customers in the state, without any burden of sales tax regulatory requirements. In turn, it would lead to loss of significant sales tax revenue to states and their local governments.

Therefore, the Court concluded that Quill’s physical pres­ence standard was “unsound and Incorrect” and overturned the Quill decision.

What to Expect for Your Business

In light of the Wayfair standard, it is expected to see more states promptly expanding their nexus assertion requiring out-of-state retailers to collect sales taxes on in-state sales. It is important to understand what this change means for your business to the sales tax filing responsibilities. We can assist you in analyzing your unique situation and to­gether determine your sales tax requirements.

To discuss your business and sales taxes, please contact your relationship KLiCHS members.


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