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June 28, 2018

More Businesses Subject to State Economic Nexus Following South Dakota v. Wayfair

Businesses may have to start looking at sales and use tax in a much different light.  While the term “nexus” may not be the most commonly used word in your vocabulary, it is certainly one that may be about to make an impact. On June 21, 2018, the United States Supreme Court overruled the landmark case of Quill v. North Dakota.  The overruling of Quill in the South Dakota vs. Wayfair case may have tax ramifications for your business.  Quill provided that a company must have an actual physical presence in a state in order for a State to require an out-of-state business to charge that state’s sales tax.  However, the case of South Dakota vs. Wayfair determined that physical presence is no longer needed to have “substantial nexus” in a state, as required by constitutional law.

Enacting Economic Nexus Standards

There are a number of states that have already enacted an economic nexus standard. These economic nexus standards usually hold a retailer liable to charge sales tax if they sell items into a state and meet certain thresholds.

As of today, 24 states have enacted economic nexus laws, notice & reporting requirements or announced their impending decisions on economic Nexus:

Alabama                                                        Minnesota

Colorado                                                        Mississippi

Connecticut                                                   North Dakota

Georgia                                                          Ohio

Hawaii                                                            Oklahoma

Iowa                                                               Pennsylvania

Illinois                                                             Rhode Island

Indiana                                                           South Dakota

Kentucky                                                       Tennessee

Louisiana                                                       Vermont

Massachusetts                                              Washington

Maine                                                             Wyoming

How Businesses Can Prepare

Although there are currently only 24 states that have enacted or discussed statutes on economic nexus, the South Dakota vs Wayfair decision will most likely start a tumble effect resulting in many more states enacting economic nexus standards.  If your business currently ships tangible personal property out of your home state, this ruling is more than likely going to affect you now or in the future.  It is important that companies track all sales made in each state to further determine if they do in fact have nexus in a jurisdiction where they are not registered. Contact an Anders advisor with questions specific to your business.

Tax associate Connor J. Obermeier was a contributor to this post. 

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