When it comes to the U.S. Supreme Court’s recent Wayfair decision, online sellers based in Europe and beyond would do well to heed this advice: “Click it or Ticket!”
This catchy warning – which cautions U.S. motorists to buckle their seatbelts or face the legal consequences – also applies to all information regarding the Supreme Court’s decision in South Dakota v. Wayfair, as well as to the multitude of ways individual U.S. states are now considering updating their sales and use tax legislation to follow South Dakota in their ambitions to have sales tax apply much more broadly than it has applied before. Unlike other changes in U.S. tax legislation that may not apply to companies outside the U.S., this time you better be paying attention.
Tax leaders whose (non-U.S.-based) companies conduct online sales in the U.S. (or whose U.S.-based companies conduct online sales in more states than where they are currently registered) should learn as much as possible about the Wayfair ruling’s implications on their sales tax landscape and compliance requirements. You can start your crash course by clicking on the Supreme Court’s ruling, these FAQs, this webcast and this collection of state-specific sales tax updates.
The Supreme Court’s historic Wayfair decision enables all states to require remote sellers to register for sales tax in that state, charge the sales tax on out-of-state transactions and then oblige you to file a sales tax return and pay over the tax collected. In the specific case of South Dakota, only out of state sellers whose in-state transactions surpass a defined threshold (based on either annual revenue or number of transactions) are required to register for and charge sales tax. However, these thresholds will almost certainly vary by state.
States that do not already have similar thresholds in place will need to determine if and how they are going to apply the new standard to determine “nexus*.”
That’s why tax functions within affected companies – regardless of where they are based – should monitor this matter closely. We’re also carefully following these developments. In my next post on the Wayfair decision, I’ll identify several prudent actions to consider taking.
*“Nexus, also called “sufficient physical presence,” is a legal term that refers to the requirement for companies doing business in a state to collect and pay tax on sales in that state. Prior to the Wayfair court case, there was a requirement to have physical presence in a state to have nexus. With Wayfair, such a requirement no longer exists.”
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.