Quarles & Brady LLP
Tax Law Alert
by David Brunori and Dawn R. Gabel
March 19, 2018
In anticipation that the US Supreme Court will make a significant change to the law, many state revenue departments are becoming increasingly aggressive in their approach to out of state vendors. For decades, companies with no physical presence in a state were not required to collect tax on their sales to that state. In June, the US Supreme Court will decide whether those rules still apply. In that case, South Dakota passed a law requiring remote sellers – those with no physical presence in the state—to collect tax on their sales. If South Dakota prevails, all 45 states that collect sales taxes will likely require remote sellers to collect tax.
But many state revenue departments are acting as though South Dakota has already prevailed. We have seen many states assert tax liabilities against out of state companies. They are doing so in a number of ways. 31 states have enacted laws to force out of state sellers to collect tax. Some states have so called “click through nexus” laws that require collection if a company has any agreements with web sites or independent contractors to sell products. Other states (including South Dakota) have imposed simple sales thresholds as a trigger for tax obligation. Two states believe that merely having a website available in a state and a certain amount of sales is enough to require collection. Even more troubling, several states have notice and reporting laws that require out of state sellers to either file reports naming their customers (so the state can collect use tax from them) or collect sales taxes.
We have seen companies receive audit notices, proposed assessments, and other notices from revenue departments demanding payment of taxes, penalties, and interest. In some cases, the states are merely trying to scare companies into collecting. If you sell products and services into a state where you have no physical presence and receive a notice from a revenue department, do not panic. But do not write a check to the revenue department until you talk to a tax professional with sales tax experience.