Supreme court upends online shopping carts

The Wayfair decision may be as significant as the rewrite of the U.S. federal tax code.

By Bob Nihen

Online and brick-and-mortar retailers need to consider how they’ll address their expanded tax collection responsibilities in light of today's Supreme Court ruling in South Dakota v. Wayfair, which addresses state taxation of online retail sales.

“Today’s Supreme Court decision in South Dakota v. Wayfair could turn out to be almost as significant for American businesses as the recent rewrite of the U.S. federal tax code,” said Jeffrey C. LeSage, Americas Vice Chairman – Tax, of KPMG. “It’s a decision that reflects the realities of an increasingly digital global economy.”

LeSage also said: “The impact of the Court’s ruling on companies in terms of time, technology, and expense is likely going to be substantial. Businesses will now need to prepare to closely examine and retrofit their operations to determine where they have to collect tax, whether their goods are taxable, and how they are going to handle the new tax computation, filing, and remittance obligations.”

“The Supreme Court’s decision today in South Dakota v. Wayfair to reverse its 1992 ruling in Quill will remake the landscape for state tax collection in the U.S.,” said Harley Duncan, leader of the state and local tax group in the Washington National Tax practice of KPMG. “Physical presence is no longer a prerequisite for states to require retailers to collect and remit state and local sales and use taxes, so many sellers will be moving into uncharted territory.”

Read KPMG’s initial comments on the oral arguments heard in the Wayfair case here.

The U.S. Supreme Court on April 17 heard oral arguments in the case, reviewing the Court’s current precedent, set more than 25 years ago in Quill v. North Dakota, that a state can only require sales tax collection from businesses with a physical presence, or nexus, in its jurisdiction.  

“There’s a lot at stake for retailers and the states with this case,” Duncan said at the time, noting that the retail landscape has changed dramatically since the Quill decision due to explosive growth in online commerce.

“Remote sellers should take steps now to prepare for the possibility that--if Quill is overturned-- they may need to soon begin collecting taxes in states where they previously have not had nexus,” Duncan added.

To get ready, Duncan says internet retailers, in particular, should:

  • Assess how a ruling overturning Quill might impact their overall business.
  • Review their current nexus footprint and determine whether they have the right systems in place for collecting and remitting taxes to those jurisdictions.
  • Examine their technology needs and their compliance obligations.

At the same time, retailers and the states need to keep an eye on Congressional efforts to move forward legislation on online commerce.

Should the high court overturn Quill, it is unlikely to adopt a bright-line rule on sales and use tax nexus rules, Duncan asserts. In this scenario, unless Congress acts to adopt a national standard, there will be a complete lack of uniformity among the states. In addition, without economic nexus provisions, retailers will lack clear guidance on their sales tax collection responsibilities.

Faced with all of this uncertainty, one thing is clear, Duncan says: Retailers and states need to move fairly quickly to prepare for several possible outcomes.

To speak with Duncan, please contact Bob Nihen.

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KPMG Comments on South Dakota v. Wayfair

KPMG issued a statement following the April 17, 2018 arguments before the U.S. Supreme Court in the case which addresses state taxation of online retail sales.

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Harley T. Duncan

Harley T. Duncan

Managing Director, State & Local Tax, KPMG US

+1 202-533-3254