Understanding the Laws Governing Sales Tax Compliance

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If you are involved in retail sales then one very important thing you need to know is how the laws governing sales tax across state lines have changed.

What really brought this issue to the forefront is the Supreme Court case of South Dakota vs. Wayfair. If you are not familiar with Wayfair, it is a very popular retail company that sells household goods. The gist of the case concerns whether a company should have to pay sales tax for a different state than the one they reside in when they sell something to a person in another US state.

One of the best articles we found covering this groundbreaking case–explaining in great detail what happened and how it all turned out with the wayfair sales tax exemption–comes from TaxConnex.

Below is a section of that article for your reading convenience:

On June 21, 2018, the U.S. Supreme Court determined in South Dakota v. Wayfair, Inc. et al that an out-of-state seller could establish “nexus” through economic activity alone. (Nexus is an economic presence that triggers the obligation to collect and remit tax or at least communicate with the appropriate states.)

In Wayfair, the Supreme Court overturned its 1992 decision in Quill Corp. vs. North Dakota and decreed that physical presence in the internet age is no longer required to create nexus. The Court’s reasoning: the South Dakota law regulating Wayfair did not burden retailers because only merchants doing a large annual business in the state were required to collect.

(The Wayfair case involved three internet-sales companies: home goods and furnishings vendors Wayfair and Overstock and electronics vendor Newegg. The South Dakota courts actually found in favor of Wayfair in the early days of the case.)

The decision opened the floodgates to individual states mandating that companies selling products in those states collect sales tax.”

As you can see, this changed the game in a huge way when it comes to sellers paying sales tax, no matter where they reside. For even more help understanding how this all works, read this article from The Balance and this one from Chron.com.

Small Business Promote believes that the information we have provided in this blog post will help anyone who is involved in sales understand better how the sales tax regulations work. Hopefully, this will keep your business out of trouble with the IRS and that’s always a good thing.

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