Under South Dakota law (if you are not in South Dakota keep reading), retailers have nexus for sales tax purposes if they (1) deliver more than $100,000 of goods or services into the state or (2) engage in 200 or more separate transactions for the delivery of goods or services into the state. In a 5-4 decision on June 21, 2018, the U.S. Supreme Court sided with South Dakota, ruling that the physical presence standard in Quill is “unsound and incorrect.” The Court characterized the Quill standard as a “judicially created tax shelter” that benefits internet retailers that limit their physical presence to one or two states, but sell goods and services to consumers in multiple states.

So What Does This Mean to You?

As a consumer, it means you will start to see sales tax charged on more and more out of state or internet purchases. As a retailer, it means you may need to start to charge sales tax in states where your product is delivered.

Previously, a retailer needed a physical presence in a state before the state could force you to charge sales tax. This physical presence could be traveling into the state to deliver goods, holding inventory in a state or having sales people in a state. Now, the shipping of items to a state, even by common carrier (UPS/FedEx) can trigger physical presence for sales tax purposes.

The South Dakota law thresholds mentioned above mean that small retailers will continue to be exempt from the sales tax requirements, but based on the Supreme Court ruling, each state will be developing their own thresholds which may be lower than South Dakota’s thresholds.

We recommend businesses develop systems to track the origins of their sales so a determination can be made if sales to a state will be greater than the state’s threshold.

We will continue to monitor each state’s approach to this issue, but if you have any questions, please contact your local Hawkins Ash representative.

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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