Sales Tax & Physical Location

By Phil Smith

On June 21, the Supreme Court made life more interesting for anyone who does business on the internet. As everyone who does business on their website or on eBay knows, the current law is that you don't have to collect sales tax if you don't have a physical presence in the state you're shipping the product to. As you also probably know, state governments are hurting for cash flow since so much business has moved to the internet, and their sales tax revenues are dropping. South Dakota passed a law that they were going to collect sales tax on any business that does $100k of business (or 200 transactions) in their state every year - whether you have a physical building or employees there, or not. The law was challenged, and the Supreme Court decided that they weren't going to make a final ruling but that the SD law might stand under further review. If that happens, many states are likely to pass similar laws.

“Everyone needs to take a deep breath, because they remanded the case back to South Dakota,” Scott Peterson, vice president of U.S. Tax Policy and Government Relations at Avalara. “The South Dakota law is not going into effect this afternoon. It still has to be evaluated on the four prongs of the Complete Auto case. This was a U.S. Supreme Court case where the court ruled in favor of the state, and laid out four prongs to test whether the Commerce Clause was violated. The prongs are substantial nexus, nondiscrimination, fair apportionment and a fair relationship to services provided by the state.”

Fortunately for our clients, we can help with these kinds of problems. Whether you are using Sage 100, Sage 300, or Sage X3, our partners at Avalara do the hard work of staying up to date on the law and make it easy for you to calculate, collect, and report and submit your sales tax accurately. So don't get caught when the law finally changes - call us today to review how we can help.