Collecting Sales Tax on Remote Commerce--the Work Continues.

• Author: Bailey, Mike
• Position: REMOTE SALES TAX

In the past, tracking sales tax trends primarily consisted of knowing your tax laws, your local economy, and the retail business community. But the function has evolved over time, and now finance officers need to know more about how remote sales [as in goods purchased from businesses outside your jurisdiction that are delivered to businesses or households in your community] are subject to either a sales or use tax obligation.

The U.S. Supreme Court's 2018 decision in South Dakota v. Way fair, Inc. [Wayfair] removed one of the barriers to collecting taxes on remote sales, and it has significantly affected this aspect of remote commerce on state and local government revenues. While many of us thought the COVID-19 pandemic recession would have a negative impact on sales tax collections, the combination of the Supreme Court's decision and the dramatic increase in remote sales activity has resulted in an increase in these revenues for many governments.

In this article, we will briefly retrace the evolution of taxing remote sales and then examine some of the current issues, trends, and concerns that remain in this increasingly important part of our local economies.

A quick review

For many years, states and local governments were unable to enforce the collection of their sales taxes on remote sales because of a Supreme Court case known as Quill Corp. v. North Dakota [Quill]. This 1992 case affirmed the decision in the 1967 National Bellas Hess v. Department of Revenue of Illinois [Bellas Hess] case, in which the Supreme Court determined that only businesses with a nexus--a physical presence--in a state must collect sales tax for that state.

The court determined that the complications of knowing the tax laws and reporting taxes without a nexus represented an "undue burden" on interstate commerce. Consequently, the application of state and local sales taxes focused on the issue of physical presence for many years. But in the Wayfair ruling, the Supreme Court struck down the physical presence requirement originally imposed by Bellas Hess.

In the Wayfair decision, the Supreme Court did not determine that state and local sales taxes were equally enforceable within and beyond the boundaries of a jurisdiction; it merely eliminated the physical presence requirement. In its ruling, the court was careful to point to certain elements of the South Dakota law that were relevant to its decision, including a safe harbor for those with limited sales in the state...