Tag Archives: Supreme Court

South Dakota v. Wayfair Rejects the Physical Presence Standard

States desperate for an influx of cash just received a blessing from the United States Supreme Court through the Court’s decision in South Dakota v. Wayfair. The decision reverses prior decisions in Quill v. North Dakota and National Bellas Hess v. Department of Revenue of Illinois, which provided that only a business with a physical presence in a state could be required by that state to collect sales tax. In South Dakota v. Wayfair, the Court found that a “substantial nexus” with a state, rather than physical presence, is all that is required for a state to have the power to require an out-of-state business to withhold and pay sales tax.

For years, businesses have avoided the collection of sales tax on online sales by working around the physical presence requirement. Catalogs and phone orders were the original avenues allowing a business to reach more customers without establishing a physical presence in new jurisdictions. The growth of online sales has only compounded the problem faced by state budgets.

Until South Dakota v. Wayfair, a business making an online sale to a customer located in a state where that business does not have a physical store could not be required to collect sales tax on that sale. The sales tax owed would, in theory, be paid directly by the customer, with the customer required to report the sale and pay a use tax to his or her home state. Such use taxes are nearly impossible for states to enforce, with less than two percent of taxpayers ever reporting the use taxes they owe. Unfair competitive advantages have arisen as online retailers sell their goods for a lower, tax-free price than what could be offered by a local store selling from a physical location and required to collect sales tax at the time of sale.

States have attempted to fight back against the physical presence requirement through a number of different tax laws and strategies. The law brought before the Supreme Court in South Dakota v. Wayfair required any business with $100,000 or more of sales delivered to South Dakota or engaging in 200 or more separate transactions for the delivery of goods into the state to withhold and pay sales tax directly to the state.  In upholding the law, the Court defined substantial nexus as when a taxpayer “avails itself of the substantial privilege of carrying on a business in that jurisdiction.”

With states having broader reach to directly tax sales, we can expect a more level playing field between online retailers and brick and mortar shops. We can also expect states looking to expand the reach of their sales tax laws to pass new legislation affecting a broader number of businesses. Businesses conducting sales online to customers in other states must be aware of new requirements a state may impose on the collection and payment of sales tax and what sales may be subject to the withholding of tax by the seller.

Jamie E. Koepsel
jkoepsel@williamsparker.com
(941) 552-2562

Supreme Court Upholds the Affordable Care Act

The Supreme Court has issued its opinion in King v. Burwell, the much anticipated case regarding whether Affordable Care Act subsidies are available to purchasers of insurance on the Federal Exchange or whether the plain language of the Act restricted such subsidies to only those purchasing insurance through an “Exchange established by the State.” The Court, over strongly worded dissent, determined that the Act permitted payment of subsidies for insurance purchased through the Federal Exchange, leaving Obamacare, as it is known, intact. Had the court ruled as the dissent held, then millions of people would have effectively been exempted from the requirement to purchase health insurance (the “individual mandate”) because their health insurance cost, when not supplemented by a subsidy, would have exceeded 8% of income. The outcome of such a decision could have led to the “death spiral” for the Act, since the underlying financial assumptions that keep insurers in business are directly related to the effectiveness of the individual mandate.

The Court’s decision will provide certainty in the healthcare marketplace. King v. Burwell was widely seen as the last, and best, chance for opponents of the Act to obtain a judicial veto of the Act. Opponents of Obamacare now realize the Court will make every effort to uphold the Act in future cases.

Read Supreme Court Opinion here:  Supreme Court Opinion

 John L. Moore
jmoore@williamsparker.com
941-329-6620