U.S. Sales Tax Ruling to Impact Online Retailers

Tax Alert

U.S. Supreme Court Opens the Door to Expanded State Sales Tax Collection Obligations for Remote Sellers – impact for Canadian Companies

On Thursday, June 21, 2018, the U.S. Supreme Court overruled its prior decision that required an out-of-state taxpayer to have physical presence in a state before that state could impose an obligation to collect sales tax. This 5-4 decision in Wayfair is highly significant for online retailers, as it effectively closes a loophole that allowed them to avoid collecting sales taxes in a state where they had no physical presence.

While this case was specifically related to South Dakota’s sales and use tax legislation, we expect that many if not all states will adopt sales and use tax legislation closely resembling South Dakota’s because it has been upheld by the U.S. Supreme Court. In fact, many states have already begun passing legislation like South Dakota’s in the days following the Wayfair decision.

States that currently have similar sales tax collection obligations as South Dakota for out-of-state retailers include the State of Washington, Alabama, Indiana, Hawaii, and Illinois among others.

Canadian companies making retail sales of products into the United States will be impacted by this ruling as will smaller vendors selling products through platforms like eBay and Etsy. Consumers will also notice the change because the decision will likely result in paying more for online purchases.

“Each year the physical presence rule becomes further removed from economic reality and results in significant revenue losses to the States,” wrote Justice Kennedy in an opinion joined by Justices Thomas, Ginsburg, Alito and Gorsuch.

Their decision seeks to put e-commerce businesses on a level playing field with in-state brick and mortar competitors.

Canadian retailers will find that collecting and remitting state taxes adds a new level of complexity to their sales. Different states have different tax regimes and the increased compliance costs associated with the changes may be significant.

How MNP Can Help

For more information or to evaluate the effects and implications of this ruling for your company, please contact an MNP Tax Specialist in your region.