The Impact of South Dakota v. Wayfair on Small Businesses
Last week, the Supreme Court of the United States (“SCOTUS”) handed down its much-anticipated decision regarding a state’s ability to collect sales tax from out-of-state merchants on transactions with in-state residents. In South Dakota v. Wayfair, SCOTUS overturned its previous decision in Quill v. North Dakota, and held that states can require vendors to collect sales and use taxes and remit them to the particular state if the purchaser is an in-state resident, even if the vendor does not have an in-state presence. While Wayfair involved internet transactions of goods to people in South Dakota, the decision also impacts services providers across state lines. And, what about small businesses? Luckily, the law at issue in Wayfair provides that it would only apply if the “foreign” vendor engaged in more than 200 separate transactions or more than $100,000 of in-state South Dakota sales annually.
However, the question arises as to how the decision would apply in other states. Several states have laws that tax internet transactions in one form or another and other states are considering enacting such laws. What is likely to happen is that states that want to tap into this revenue stream will adopt laws similar if not exactly the same as South Dakota’s law with substantially similar exemptions for de minimus transactions and retailers. In fact, Eric Citron of Goldstein & Russell P.C., who wrote South Dakota’s briefs in Wayfair, said that “States want laws they can enforce, and they aren’t interested in auditing really small sellers. There might be lawsuits if states placed high burdens on small vendors, but I don’t think this is possible; expect states to closely mimic South Dakota’s law.” (Copy South Dakota’s Online Sales Tax, Avoid Lawsuits: Lawyers, Bloomberg BNA Daily Tax Report, June 26, 2018). It is highly doubtful that states would seek to try to tax all internet transactions including those involving small businesses – why try to antagonize small entrepreneuers when there already is a case that has facts which have been tested and approved by SCOTUS? So, unless you plan for your small business to be the next Amazon, the Wayfair decision will not have huge ramifications on your operations.
Chris established Christopher T. L. Brown, Attorney at Law, PLLC on October 20, 2009. Before starting his own firm, he practiced in the business planning and transactional section of HannaStrader, P.C., in Portland, Oregon, from August 2001 to March 2007.