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Digital Business Lawyer

Internet sales tax: US Supreme Court eliminates physical presence rule and leaves uncertainty

On 21 June 2018, the US Supreme Court issued a decision in South Dakota v. Wayfair Inc., et al. (‘Wayfair’), an appeal widely regarded as the most important state tax case decided by the US Supreme Court in decades. In a 5-4 decision, the Supreme Court overruled precedents dating back more than 50 years1 that prevented subnational jurisdictions (states and localities) from requiring retailers with no physical presence in the jurisdiction to collect a sales tax or similar transaction tax on goods and services delivered to consumers in the jurisdiction. As a result, thousands of internet retailers and other remote sellers may now be confronted with significant technical, financial, and administrative burdens in complying with the sales tax laws of potentially dozens of states and thousands of local jurisdictions where they have no more than a substantial ‘virtual presence.’ In addition, the Supreme Court’s discussion in Wayfair of the proper analysis of state tax laws under the Commerce Clause of the US Constitution has left considerable uncertainty regarding the enforcement of existing sales tax laws in many states against remote sellers, as well as the broader implications of the decision for other types of state taxes. In this article, Matthew P. Schaefer, Partner at Brann & Isaacson, who is counsel to various trade associations and numerous internet retailers including the respondents in Wayfair, provides his analysis of the case and its significance for online retailers and remote sellers.

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