On June 21, 2018, the U.S. Supreme Court handed down the decision for South Dakota v. Way fair, Inc., a case that was decades in the making. In the decision, the Court struck down a long-held physical presence standard that has vexed state and local sales and use tax administration for years. In particular, because states (and their local governments) could only require a business to collect and remit taxes if they had a physical presence in the state, the standard essentially resulted in the loss of billions of dollars in critical sales tax revenue for decades. Essentially, until the Wayfair decision, the physical presence standard kept sales and use tax administration in the 1960s, while technology transformed the retail industry into an electronic, global marketplace.
The question now is--what happens next? The answer to this question has three components: a brief look at what states are doing in response to the decision, speculation as to the possible actions the U.S. Congress could take, and a discussion of what local governments could be doing at this point.
A LOOK AT THE STATES
Diving into the state perspective first requires a quick recap of the South Dakota decision. While the decision in fact removes the burden of the physical presence standard first established by the Court in 1967, it does not exactly bless the South Dakota law as the perfect solution. Alternatively, the court pointed out components of the state law that the justices felt succeeded in reducing the burden on businesses (i.e., remote sellers) to comply with the requirement to collect. For example, the South Dakota law has a safe harbor for those with limited business in the state, and it does not allow for retroactive collection.
Further, the decision also noted South Dakota's participation in the Streamlined Sales and Use Tax Agreement (SSUTA) as also reducing the burden on businesses because of the minimum simplification requirements states must implement to comply with the agreement. Some of the simplification measures the court noted include: single, state-level administration; uniform definitions of products and services; simplified tax rate structures; and audit protections.
Accordingly, many states have sought to mimic South Dakota in adopting their respective remote seller laws. In fact, remote seller collection laws in roughly ten states went into effect October 1, 2018. A handful of other states will be following suit either later this year or as of...