We’re Not in South Dakota Anymore, Toto
At first glance, one might conclude that the U.S. Supreme Court’s decision in South Dakota v. Wayfair would have an immediate impact only on those out-of-state vendors that sell goods and services into South Dakota. After all, it was South Dakota’s law requiring remote sellers to collect and remit sales taxes that the Supreme Court upheld.
On closer review, however, that conclusion would be wrong. For those who do not regularly follow the action in state capitals, South Dakota was just the tip of a very long spear comprised of states that have long sought the power to require remote sellers to collect and pay sales taxes that their residents have avoided by employing e-commerce. Anticipating that the time might be ripe for the Supreme Court to reverse decades-old adverse precedent on the dormant commerce clause, during the last two years, half of all states have either enacted laws or adopted regulations designed to do what South Dakota’s S.B. 106 does. Some, like Massachusetts, adopted regulations in 2016. Others, like New Jersey, enacted a new law just 10 days after the Court decided Wayfair. Expect more states to follow suit.
The 25 states (thus far) whose laws and regulations require remote sellers to collect and remit sales taxes on e-commerce sales stretch the length and breadth of the country, from Maine to Hawaii, from Minnesota to Louisiana. And while many of the new laws share similar features, such as minimum thresholds before the collection mandate kicks in, those features can differ widely. For example, state laws apply to remote sellers who sell just $10,000 per year into Oklahoma, Pennsylvania, and Washington, yet only to those who sell $500,000 annually into Massachusetts, Ohio, and Tennessee.
Not only do the substantive laws vary from state to state, the states are also taking widely different approaches to when businesses must start complying. Some, like Georgia and Iowa, will begin implementing their new laws on January 1, 2019, giving merchants six months to make the necessary changes to their business processes. Others, like Louisiana and Minnesota, enacted laws that – on their face, at least – took effect on the date of the Wayfair decision, June 21, 2018. Look for state departments of taxation to issue guidance soon on what they expect from remote sellers.
Finally, while most states have said that they plan to apply their remote seller laws prospectively, there are still a few wild cards. Massachusetts adopted a regulation in 2017 that it claims passes constitutional muster even under the pre-Wayfair law in Quill v. North Dakota, and has announced that Wayfair does not change that result. Connecticut has aggressively sought to enforce its law against remote sellers even before enactment of its new law (which takes effect December 1, 2018). And while the Mississippi Department of Revenue said it does not intend to apply its December 2017 regulation to remote sellers until after the decision in Wayfair, it has not yet announced whether it will seek to apply that regulation retroactively. However these states proceed, it remains to be seen whether remote sellers will spend their resources trying to comply or convince Congress to overturn Wayfair through legislation (already introduced), instead of continuing to fight in court.
The best advice to any retailer engaged in e-commerce: When in doubt, comply. The mantra in a post-Wayfair world is caveat vendor!