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Will the 'Kill Quill' Movement Change Nexus Standards for Good?

By Jacob Ouradnik, CPA

While most of the news media was busy covering the Tax Cuts and Jobs Act, the U.S. Supreme Court, on Jan. 12, 2018, quietly agreed to hear a case that could spur dramatic changes in nexus standards across the country.  

The case we're talking about is South Dakota vs. Wayfair Inc., which centers on a South Dakota law that requires an out-of-state seller to collect sales tax from South Dakota customers if, during the previous calendar year or the current calendar year, the seller's gross revenue from taxable sales delivered in South Dakota exceeds $100,000, or if the seller makes more than 200 deliveries of these sales in South Dakota annually. 

In September 2017, the South Dakota Supreme Court ruled that the statute violated the precedent set by the landmark 1992 decision in Quill Corp. vs. North Dakota—that is, only companies with a physical presence, or "nexus," are required to collect sales tax from customers within the state. South Dakota, however, went on to petition the Supreme Court, setting the stage for what could be a new precedent for sales tax requirements.

How could this ruling impact multistate businesses nationwide?

If the Supreme Court were to rule in favor of South Dakota, it wouldn't be long before other states would have identical or similar laws in place. In fact, at the moment there are at least 15 states that have such laws drafted. Proponents of the "Kill Quill" movement say the precedent is antiquated in a world that relies so heavily on e-commerce.  In fact, conservative estimates indicate states are losing anywhere from $5 billion to $10 billion in potential sales tax revenue each year. And, yes, brick-and-mortar stores would arguably be at less of a disadvantage if Internet sellers were also subject to the same sales tax rules.  

When could these changes go into effect? 

Right now, the South Dakota vs. Wayfair Inc. arguments are set to be heard in April; a ruling is expected in June. This means that multi-state businesses could be dealing with new nexus standards in fewer than six months. 

How can you prepare? 

The South Dakota Supreme Court has rejected the state’s efforts to enforce the new law's collection requirements until the U.S. Supreme Court settles on a ruling. If your company makes out-of-state sales, now is a perfect time to reevaluate your sales tax obligations in each state. While doing so, consider not only potential changes to the law but also ways in which your company and operations may have evolved over the years. 

We will be watching this case closely, and will keep you informed of any developments. In the meantime, if you have questions about how you may be affected, please do not hesitate to give us a call.