On June 21, 2018, in a highly anticipated ruling, the U.S. Supreme Court ruled 5-4 in favor of overturning its 1992 decision in Quill, which set a standard requiring substantial physical presence before a state could enforce the sales tax collection responsibilities on a seller. In the current case, South Dakota v. Wayfair, Inc., writing for the Court’s majority, Justice Anthony Kennedy indicated “…the Court concludes that the physical presence rule of Quill is unsound and incorrect. The Court’s decision in Quill Corp v. North Dakota, 504 U.S. 298 (1992), and National Bellas Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753 (1967), should be, and now are, overruled.”
What does this mean? The short answer is that companies will now need to consider not only whether they have physical presence (or “boots on the ground”) nexus in a given state, but also whether their sales activity in a state exceeds certain “economic nexus” thresholds (such as the South Dakota threshold of $100,000 of sales or 200 annual transactions). If so, they will need to register with the state and collect and remit sales taxes.
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