Economic Nexus Rules and New Tax Challenges for Multistate Businesses

Description

On June 21, 2018, the U.S. Supreme Court issued its landmark decision in South Dakota v. Wayfair, overturning Quill Corp. v. North Dakota, which required businesses to have a physical presence in a state to create nexus for sales and use tax purposes. Since this decision, nearly every state has adopted economic nexus thresholds, over which remote sellers of taxable goods and services are obligated to collect and remit sales tax, despite lacking a physical presence in the state.

In eliminating the physical presence rule, but not establishing a specific standard for substantial nexus, the Court explained that the Commerce Clause doctrine applies to address taxpayer concerns regarding undue burdens under state tax laws. Since the Court did not address retroactivity and other related challenges, states are enforcing existing laws and adopting new economic nexus provisions with varying thresholds to increase tax revenue. State and local governments are also expanding their definition of physical presence and their economic nexus thresholds to other state taxes.

Tax professionals and advisers must be aware of the myriad challenges facing multistate businesses and methods available to minimize state tax liability. There is also a possible spillover effect of the decision on other state taxes.

Listen as our panel, counsel for Wayfair, provides an analysis of economic nexus in various states and offers critical tax planning considerations for remote sellers of taxable goods and services.