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After last summers’ U.S. Supreme Court ruling in the landmark sales and use tax nexus case, South Dakota v. Wayfair, many states have adopted nexus provisions requiring out-of-state sellers to collect and remit sales tax, regardless of whether they have a physical presence in the state – complicating sales and use tax compliance for many businesses selling across state lines.
During the ‘Wayfair’ case, the court overturned the 1992 U.S. Supreme Court ruling in Quill Corp. v. North Dakota, which previously based such taxes on the seller having a physical presence in the state. Without substantial physical nexus in a state, a state could not legally compel a remote seller to register and collect its sales tax.
Ruling in favor of South Dakota’s nexus standards, the U.S. Supreme Court stated the application of a physical presence requirement is an “incorrect interpretation of the Commerce Clause,” particularly when measured in a vastly expanded e-commerce marketplace.
In light of the ruling, many states have enacted complex legislation and administrative policies addressing economic nexus and various use-tax notification requirements. Therefore, if you are selling products and/or services across the country, your company will likely be taking on the task of coming into compliance with various new state legislation.
Under most economic nexus rules, businesses that sell taxable products and/or services to end-users will be required to charge, collect and remit sales taxes on the sales of their taxable products/services, or may be required to collect exemption certificates from customers, even though they have no physical connection to the state.
Making it even more complex, many states have enacted burdensome use tax notice and reporting requirements for remote sellers. These laws require remote sellers to provide information to customers about their potential use tax liability obligations and report transaction data to the state tax department.
Below are some actions you should start considering immediately, if you haven’t already:
With new laws in place, states will be aggressively seeking out non-compliant sellers and enforce their sales and use tax nexus statutes to the fullest extent—assessing uncollected tax, interest and penalties from their effective dates to help drive state revenue.
Doeren Mayhew has access to resources to assist you in devising a cross-state nexus strategy to avoid aggressive non-compliance penalties, should you require it. However, it is important to note this goes beyond the scope of our standard federal and state tax return preparation and filing services. Therefore, if you would like compliance assistance or additional nexus advisory services for your business, please contact Doeren Mayhew.
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