Supreme Court Rules on Out-of-State Collection of Use and Sales Taxes

In a 5-4 decision, the U.S. Supreme Court ruled that states have the authority to collect sales tax on goods and services delivered from remote sellers that don’t have a physical presence in their states.

The Supreme Court is now able to require an out-of-state seller to collect its sales or use tax. This decision overturns the previous precedent that the seller must have a physical presence in the state where goods are delivered. IFI’s general counsel, George Delta, stated “For what it may be worth, even the four dissenters agreed that the two earlier cases were wrongly decided. Their preferred solution would have been to let Congress fix the problem.”

Delta further comments, , “In the absence of Quill and Bellas Hess, (the two case decisions overturned), the first prong of the Complete Auto test, 430 U. S., at 279, which had defined Supreme Court precedent on nexus for tax purposes, simply asks whether the tax applies to an activity with a substantial nexus with the taxing state. The court held that the nexus is clearly sufficient in the current case involving remote sellers in the South Dakota vs. Wayfair case. The S.D. Act applies only to sellers who engage in a significant quantity of business in the state, and respondents are large, national companies that maintain an extensive virtual presence. The court asked the S.D. Supreme Court to address any remaining claims regarding the Commerce Clause’s application in the absence of Quill and National Bellas Hess.” 

“Now, the ball is back in Congress' court to see if it can come up with comprehensive legislation to implement sales/use tax collection. Congress still retains the right to enact such legislation under its broad power to regulate interstate commerce.”

When it comes to collecting sales and use taxes, online retailers will now be subjected to the same standards as retailers with physical locations in a state. The impact on incentive industry companies remains to be seen. 

For more information please see the June 2018 IFI Bulletin.