Overturn, uphold or remand?
Tax professionals – especially those whose companies conduct e-commerce across state boundaries in the United States – are eager to learn which of those options the U.S. Supreme Court has selected in its South Dakota v. Wayfair decision. Interestingly, the Supreme Court justices voted on how the case will be decided following the April 17 oral arguments. The opinion is in the process of being drafted, and it will likely be published within the next few weeks.
There are three possible decisions in the case (here’s a quick review of the issue and what’s at stake):
- Overturning Quill and upholding the South Dakota statute: This would give the states the ability to impose “economic thresholds” to impose remote seller collection and remittance of sales tax.
- Upholding Quill and striking down the South Dakota statute: This would represent the “status quo” outcome. In this scenario, remote sellers would not be required to collect and remit sales tax. However, if this were to occur, it appears highly likely that states would respond by greatly intensifying their sales tax reporting requirements (along the lines of what Colorado now requires).
- Remanding Quill back to the South Dakota courts: This decision would require the South Dakota courts to take further action – specifically, to conduct more factual development if the Supreme Court determines that there was no factual determination on the “burden” issue under the Commerce Clause.
While tax professionals are eager to find out how the Supreme Court ruled, that doesn’t mean they should wait until the opinion is published to take action. Any of these three possible outcomes are likely to spark a flurry of activities that will create more work and new challenges for many tax functions.
Here are some steps to consider taking now to be better positioned once the decision is made public:
- Start gathering data on gross revenues and/or the number of transactions that occur within states where the company sells remotely.
- Prioritize states where the company has the greatest economic presence and create a plan to register to collect and remit sales tax (e.g., via a marketplace, or with a hosted, or cloud-based, technology solution).
- Evaluate the financial statement impact of remote seller compliance.
- Review invoicing processes and controls, as invoicing errors that occur after the decision is finalized likely will result in more significant customer satisfaction and cash flow risks.
It's important to note that not just U.S.-based companies will be impacted by the Supreme Court's decision. Global companies selling to U.S.-based customers need to be prepared, regardless of how Wayfair plays out.
We'll update you on the Supreme Court's decision once the opinion is published.
Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.