Published on Alvarez & Marsal | Management Consulting | Professional Services (https://www.alvarezandmarsal.com ) January 23, 2018 On Friday, January 12, 2018, the U.S. Supreme Court granted certiorari in South Dakota v. Wayfair, Inc., which concerns the physical presence standard for sales tax nexus established in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). As established in Quill, nexus (the minimum presence for which a state can impose its taxing jurisdiction) for sales tax purposes is determined based on a taxpayer’s physical presence (e.g., property or personnel) located in a jurisdiction. As such, online retailers have traditionally only collected sales tax on sales to customers from states where they have a physical presence. By their very nature, many online sellers have very little physical presence in most states and are therefore not required to collect sales tax in many jurisdictions. Of course, given the explosive growth in e-commerce in the years since the Quill decision, many states believe that online sellers enjoy an unfair advantage over in-state retailers since they are not required to collect sales tax. Accordingly, states have tried, with mixed success, to attribute a physical presence to online sellers through the actions of others, including so-called “affiliate nexus” and “click-through nexus,” for example. In 2017, however, Alabama and South Dakota adopted rules that required online sellers to collect the tax in certain circumstances even if the sellers had no physical presence in the state (known as “economic” nexus). These rules are directly contradictory to the Quill standard. Not surprisingly, the rules were challenged in both states. The first case to reach the U.S. Supreme Court is the above-mentioned South Dakota v. Wayfair, Inc. case. If the Supreme Court rules in favor of South Dakota, states would be allowed to require out-of-state sellers to collect sales tax regardless of whether a physical presence exists in those states. This would be a sweeping change to the current standard! Please call or email us at [email protected] for further insight on this topic! Author: Brian Pedersen Follow our series to get bite-size insights to tax matters currently affecting our technology industry. To access all A&M Tax Minute issues, click here. Supreme Court Revisits Physical Presence Test for Sales and Use Tax Purposes

Supreme Court Revisits Physical Presence Test for Sales

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Page 1: Supreme Court Revisits Physical Presence Test for Sales

Published on Alvarez amp Marsal | Management Consulting | Professional Services(httpswwwalvarezandmarsalcom)

January 23 2018

On Friday January 12 2018 the US Supreme Court granted certiorari in South Dakota v Wayfair Incwhich concerns the physical presence standard for sales tax nexus established in Quill Corp v NorthDakota 504 US 298 (1992)

As established in Quill nexus (the minimum presence for which a state can impose its taxing jurisdiction)for sales tax purposes is determined based on a taxpayerrsquos physical presence (eg property or personnel)located in a jurisdiction As such online retailers have traditionally only collected sales tax on sales tocustomers from states where they have a physical presence By their very nature many online sellershave very little physical presence in most states and are therefore not required to collect sales tax in manyjurisdictions

Of course given the explosive growth in e-commerce in the years since the Quill decision many statesbelieve that online sellers enjoy an unfair advantage over in-state retailers since they are not required tocollect sales tax Accordingly states have tried with mixed success to attribute a physical presence toonline sellers through the actions of others including so-called ldquoaffiliate nexusrdquo and ldquoclick-through nexusrdquofor example

In 2017 however Alabama and South Dakota adopted rules that required online sellers to collect the taxin certain circumstances even if the sellers had no physical presence in the state (known as ldquoeconomicrdquonexus) These rules are directly contradictory to the Quill standard Not surprisingly the rules werechallenged in both states The first case to reach the US Supreme Court is the above-mentioned SouthDakota v Wayfair Inc case

If the Supreme Court rules in favor of South Dakota states would be allowed to require out-of-state sellersto collect sales tax regardless of whether a physical presence exists in those states This would be asweeping change to the current standard

Please call or email us at aliguorialvarezandmarsalcom for further insight on this topic

Author Brian Pedersen

Follow our series to get bite-size insights to tax matters currently affecting ourtechnology industry

To access all AampM Tax Minute issues click here

Supreme Court Revisits Physical Presence Test for Sales and Use TaxPurposes

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AuthorsBrian Pedersen mailtobpedersenalvarezandmarsalcom +1 415 490 2303