If convenience wasn't reason enough for you to shop online, the sales tax saving probably was. Not anymore after Justice Kennedy's final majority opinion for the Supreme Court in the South Dakota v. Wayfair case. The decision overturned the Court's 1992 decision in Quill Corp v. North Dakota to find that sellers no longer need to be physically present in a state to meet the Commerce Clause's "substantial nexus" prerequisite for application of the state's sales tax collection requirements. The decision is a win for states and brick-and-mortar retailers, and a blow for ecommerce businesses that must now seek to comply with the complicated tax regimes of states and other local governments.

To be clear, internet sales were never really tax-free – purchasers in most states were always required to pay use tax on their out-of-state purchases. As most consumers were not aware of the requirement to pay use tax on their internet purchases, the number of consumers complying with use tax law was low and most states did not have the resources to assess many individual purchasers. But now, instead of relying on individual purchasers to report and pay use tax, a state can require a remote retailer to collect and remit sales tax.

The Wayfair decision puts an end to a long-standing and public debate over ecommerce giants and the competitive advantage they enjoyed. It also answers questions posed by the so-called "Amazon Laws" many states have passed in the years since Quill seeking to tax remote sales on the basis that economic connection alone establishes the "substantial nexus" required by the Commerce Clause.

Although the change is palatable as applied to companies like Wayfair and Amazon, smaller online businesses with lesser resources for collection activities may face significant expenses complying with state sales tax laws and additional tax filing requirements. There are two pieces of federal legislation pending – the Marketplace Fairness Act and the Remote Transaction Parity Act – that would require streamlining among state sales tax laws, but both measures have stalled in committees.

Despite the lack of guidance from Congress and the Court's disposal of Quill's physical presence requirement, the states' authority to tax remote sales isn't without boundaries. The Court emphasized that the Commerce Clause's requirements set out in Complete Auto Transit, Inc. v. Brady still apply, specifically, the tax must (1) be applied to an activity with a substantial nexus with the taxing State, (2) be fairly apportioned, (3) not discriminate against interstate commerce, and (4) be fairly related to the services the State provides. The Court hinted that special safeguards in South Dakota's law prevented discrimination, namely, the tax does not apply to sellers with only limited business activities in South Dakota, it does not apply retroactively, and South Dakota has adopted the Streamlined Sales and Use Tax Agreement (which is the basis for streamlining in the pending federal legislation mentioned above).

A number of states have enacted laws that anticipated this change. The Florida Department of Revenue is reviewing the ruling and its impact on Florida sales tax. If you are a Florida-based eCommerce business that needs help developing a multi-state tax compliance plan in the wake of Wayfair, or if your business is outside of Florida but needs help navigating Florida's tax laws, please contact an attorney in our Tax or Technology Groups.

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