On June 21, 2018 the U.S. Supreme Court released its ruling on the much-anticipated South Dakota v. Wayfair case. The impact of this decision will dramatically change the U.S. sales and use tax landscape. All U.S. states will now be able to follow South Dakota and establish bright line sales/use tax nexus standards in their sales tax legislation, requiring out-of-state online vendors to register and collect state sales tax, based on sales volumes or sales amounts into a state.
The Wayfair case specifically deals with the ability of a state to impose sales tax on a retailer that does not have a physical presence in the state. The issue stems from a 1992 decision of Quill Corp. v. North Dakota where the Supreme Court ruled that a state could not impose sales and use tax on an out-of-state corporation if that corporation did not have a physical presence in that particular state.
South Dakota's law requires out-of-state online retailers with $100,000 in sales or 200 or more separate transactions in South Dakota to charge sales tax on sales to South Dakota residents. In the 5-4 vote, the U.S. Supreme Court overturned Quill and held that a physical presence standard is not necessary. As a result, states may be allowed to collect sales tax from online retailers that do not have a physical presence in that particular state.
Many Canadian retailers sell goods in the U.S. through the internet or online marketplaces. We expect many states to pass legislation expanding their sales tax jurisdiction to online sellers who meet similar sales or transactions thresholds. The Wayfair decision will likely expand Canadian companies' obligation to register for U.S. state sales tax, collect and remit this tax and file U.S. state sales tax returns. Canadian companies that sell in the U.S. through the internet will need to reevaluate their U.S. sales tax footprint to ensure that they are complying with expanding sales tax obligations.
We are committed to providing updates on current tax changes. Please contact a member of our U.S. Tax team or one of our trusted BDO advisors at BDO Canada for more information on these tax changes.
The information in this publication is current as of June 21, 2018.
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