In a ruling issued yesterday, the United States Supreme Court held that states can require internet merchants to collect sales tax, even if they do not have a physical presence in that state. This overturned the previous rule from Quill Corp. v. North Dakota, which required collection and remittance of state sales tax when a retailer has a physical presence in the state. If sales tax was not collected through the transaction, the burden fell to consumers to report and remit use tax for out of state purchases.
Here’s a link to the full text of the opinion: South Dakota v. Wayfair, Inc., et al. In this case, South Dakota enacted a law that required all merchants to collect a 4.5% sales tax if they had more than 200 individual transactions in the state or have more than $100,000 in annual sales in the state.
As of now, the Court’s decision only paves the way for states to collect sales tax from merchants. Therefore, merchants should pay attention to actions by Congress and state legislatures on this issue to determine what their ongoing compliance obligations will be. As states begin to implement the Court’s ruling and require collection of sales tax, in the coming months consumers may notice an increasing number of retailers collecting sales tax for online purchases.