The Supreme Court’s sales tax decision: What to do. As reported here in July, the U.S. Supreme Court ruled that South Dakota (SD) could require out-of-state businesses to collect and pay sales tax to SD on sales in SD. This decision expanded its long-standing ruling that there must be a physical nexus in the state to include a virtual nexus with the state. But the decision does not open the way for all states to tax all out-of-state retailers on all online sales into that state. The court emphasized the importance of SD’s exemption for small sellers—under $100,000 in sales or 200 transactions into the state during the year—so that the SD law is not overly burdensome on small out of-state retailers, and the fact that the sales tax is not retroactive because such taxes become effective only after sales exceed one of the minimum thresholds. Finally, the court noted that SD is one of 23 states that belong to the Streamlined Sales Tax agreement that makes tax collection more uniform and simple, allowing retailers to avoid registering and filing returns with each state. Still to be determined: Does a state, such as California, need a much higher threshold to trigger the sales tax collection requirement than lightly populated SD? Must a state belong to the Streamlined Sales Tax agreement? What about localities with sales taxes in addition to state taxes? What to do: If your sales in a state meet SD minimums, check that state’s website regularly for new regs. For example, North Dakota, which has a law similar to SD’s, issued new rules immediately for out-of-state sellers who do not meet the small-seller exemption to register and collect sales taxes either by Oct. 1 or within 60 days after exceeding the small-seller exemption. Minnesota, however, is taking longer and will issue rules within 60 days. Check the 2018 Sales and Date compliance Guide by Avalara. See if you have sales into some of the 23 states that belong to the agreement. While some will adopt the SD mode, others plan narrower laws. One widely discussed alternative requires aggregation sites, such as Amazon, to collect and remit sales on behalf of small business sellers on their sites. Keep an eye on Congress, which had temporarily exempted online sales from state sales taxes but let that law expire. There is pressure for a law that sets uniform rules for sales tax collection.
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Article resource: AIPB.org July 2018 newsletter