Editor’s Note: This guest blog post comes courtesy of Gail Cole with Avalara.
When the Supreme Court of the United States ruled that a business’s “economic and virtual contacts” with a state could enable that state to tax the business’s sales, it opened the floodgates for change. What does this mean for ecommerce businesses that sell into multiple states?
It used to be that a state could only require a business to collect and remit sales tax when it had a physical presence in the state. In South Dakota v. Wayfair, Inc. (June 21, 2018), the Supreme Court found the physical presence rule to be “unsound and incorrect.” “Although physical presence still triggers a tax collection obligation, it’s no longer necessary; states can now tax out-of-state businesses.
But which out-of-state businesses? The ruling left a lot unclear. It found South Dakota’s tax system to include several features designed to protect remote sellers from undue burdens. South Dakota allows an exception for small sellers, ensures taxes won’t be applied retroactively, and is a member of the Streamlined Sales and Use Tax Agreement, meaning it’s taken steps to simplify sales and use tax compliance for remote sellers.
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What the ruling doesn’t do is create a bright-line test like the old physical presence rule. Can a state tax any remote seller doing business in the state? Or does it have to adopt a law like the one that triggered the Supreme Court case (South Dakota Senate Bill 106)? The physical presence rule may have been unpopular in many states, but at least it provided a certain degree of clarity. Today, there are many unknowns.
Maryland seems to be taking advantage of that. The Maryland Comptroller responded to the Wayfair decision by stating: “If you will make sales in Maryland, you will need to obtain a sales and use tax license.” It goes on to advise businesses to “review and analyze the United States Supreme Court’s decision in South Dakota v. Wayfair, Inc. to identify how it affects you.” It should also suggest businesses hire a tax advisor.
Avalara helps businesses of all sizes achieve compliance with transactional taxes, including sales and use, VAT, excise, communications, and other tax types. The company delivers comprehensive, automated, cloud-based solutions that are designed to be fast, accurate, and easy to use.