A landmark ruling from the U.S. Supreme Court fundamentally changed the way states can collect sales tax on purchases made online, and businesses selling goods and services across state lines are still working through the compliance implications. The decision in South Dakota v. Wayfair eliminated the physical presence standard that had long protected remote sellers from state sales tax collection obligations, and the ripple effects on e-commerce businesses have been substantial.
The tax attorneys at Mandelbaum Barrett PC advise businesses of all sizes on state and local tax compliance, e-commerce sales tax obligations, and multi-state tax planning throughout New Jersey and New York. Here is what the Wayfair decision means for businesses selling online.
What the Supreme Court Decided in South Dakota v. Wayfair
Before the Wayfair decision, the Supreme Court’s 1992 ruling in Quill Corp. v. North Dakota established that a state could only require a seller to collect sales tax if the seller had a physical presence in that state. In the e-commerce era, this meant that many online retailers could sell to customers across the country without collecting sales tax, as long as they had no warehouses, offices, or employees in those states.
The Wayfair decision overruled Quill and held that states may impose sales tax collection obligations on out-of-state sellers based on economic presence, not just physical presence. South Dakota’s law, which served as the vehicle for the case, imposed obligations on sellers that exceeded $100,000 in sales or 200 transactions in South Dakota annually.
The Economic Nexus Standard and State Compliance
Following the Wayfair decision, states moved quickly to adopt economic nexus standards. Most states now impose sales tax collection obligations on remote sellers that meet volume thresholds similar to South Dakota’s. According to the New Jersey Division of Taxation, remote sellers and marketplace facilitators with more than $100,000 in New Jersey sales in the current or prior calendar year are required to collect and remit New Jersey sales tax. New York has similarly enacted and enforced economic nexus rules for remote sellers.
The variation in threshold amounts, definitions of taxable transactions, and product exemptions across more than 40 states that now have economic nexus rules creates a compliance challenge that requires systematic attention.
What Businesses Need to Do
E-commerce businesses that had not previously been collecting sales tax in states where they lacked physical presence need to assess their current economic nexus exposure across all states. This means analyzing sales data by state, identifying which states’ thresholds have been met or exceeded, and determining the applicable rates and exemptions for the goods or services being sold.
Marketplace facilitators, such as platforms that allow third-party sellers to transact through their platform, generally have their own collection and remittance obligations that may affect the analysis for individual sellers using those platforms. The interaction between marketplace facilitator obligations and individual seller obligations varies by state.
Voluntary Disclosure and Prior Period Exposure
Businesses that have been selling into states without collecting required sales tax face potential exposure for prior periods. Most states offer voluntary disclosure programs that allow businesses to come forward, limit the lookback period, and avoid penalties in exchange for paying the tax owed going forward. Consulting with a tax attorney before approaching a state through a voluntary disclosure program helps ensure the business gets the best available terms.
Contact Mandelbaum Barrett PC for Sales Tax Guidance
The post-Wayfair sales tax landscape requires ongoing attention from businesses selling across state lines. The tax attorneys at Mandelbaum Barrett PC help businesses assess their economic nexus exposure, develop compliance strategies, and manage state and local tax obligations throughout the country.
Reach out through our contact page to speak with our tax team. We are here to help you understand your obligations under the current sales tax rules and develop a plan for sustainable compliance.