In the case of South Dakota v. Wayfair, Inc., the Supreme Court of the United States allowed the State of South Dakota, under a law it had passed, to require Wayfair (a popular online sales company) to collect and pay South Dakota sales tax even though Wayfair had no “economic nexus” to the state of South Dakota. The South Dakota law at issue required any company to collect and pay sales tax if it had more than $100,000 of sales or more than 200 different sales transactions shipped to addresses in South Dakota in any given year. For a company as large as Wayfair, it easily exceeded the threshold sales amounts, but Wayfair challenged the law because, under the old tests that required some sort of physical presence to establish “economic nexus”, Wayfair had no connection to the State of South Dakota that would’ve let it impose such a tax requirement. The Supreme Court held that the South Dakota law was a reasonable expansion of the “nexus” concept in the internet age and upheld it. In the years since the Wayfair decision came down, most states have rushed to pass similar laws. Each state’s laws are slightly different, but most have similar $100,000 (some have $200,000) or 200+ transaction thresholds. This is something to be aware of when selling goods in different states.
What does this mean for selling goods in different states?
It means you need to research the sales tax laws of every state you do business in, and it means you might need to collect and pay sales tax in states you have no physical connection to if your sales volume is high enough. I cannot recommend enough that you work with a good accountant or CPA if you’re engaged in sales across state lines. They’ll be able to research those states’ tax laws and help you prepare tax returns as needed.
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