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The Quill is Gone – Supreme Court Decision Overturns Physical Presence Standard

7/3/2018

Robert Justice, CPA summarizes The Wayfair decision and the initial guidance from the Texas State Comptroller.

Since the Supreme Court’s 1992 decision in Quill v. North Dakota, sellers have not been required to collect sales tax from customers unless the seller had a physical presence within the state where the product was to be delivered.  On June 21, in the case South Dakota v. Wayfair, the Supreme Court overturned Quill and determined that the physical presence test was no longer an appropriate standard.

In the years since the Quill decision, many jurisdictions have enacted laws that seemingly extended beyond the reach of the physical presence standard.  In fact, the Wayfair case involved the constitutionality of a 2016 law that required sales tax collection for out of state sellers based on a threshold of $100,000 gross sales limit and/or a 200 in-state transaction threshold.  And that practice was not just limited to South Dakota. The chart below indicates other selected states that have enacted similar laws that impact out of state sellers and that do not otherwise have a physical presence standard.

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The Wayfair decision effectively shifts the emphasis from the location of the seller to the location of the buyer.  As a result, sellers will most likely have additional compliance requirements and may need to increase the amount of resources it expends on sales tax reporting and compliance.

Late last week, the Texas State Comptroller Glenn Hegar, issued a press release that it referred to as initial guidance on the remote seller tax decision.  Although the communication was short on details, it seemed clear that the Comptroller has already started the process and procedures that will be required to change the current legal authority in Texas.  The communication set a target effective date for early 2019 and it expects the Texas legislature to play a prominent role given that the legislature reconvenes in January 2019.

There are many questions that remain to be answered as Congress and the States react to the Wayfair decision.  As the details become available, the tax professionals at Bland Garvey PC will be closely monitoring the situation and are prepared to assist clients needing not only compliance and reporting assistance but also those who might require a comprehensive nexus analysis.  In the interim, should you have any questions about how this ruling might impact your specific business, do not hesitate to contact us at 972-231-2503.

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