Here’s an overview of changes that occurred due to the U.S. Supreme Court’s June 2018 South Dakota vs. Wayfair decision and how TPT responded.
Sales and Use Tax Overview
Sales tax or use tax is a tax imposed on the sale or the use of certain taxable products and services. Each state has its own sales and use tax laws, its own tax rates, and its own way of characterizing goods and services as taxable.
Before Wayfair
Before the Supreme Court's decision in South Dakota vs. Wayfair, a state's ability to impose sales tax collection responsibilities on out-of-state e-commerce transactions was very limited. States were not legally allowed to require out-of-state sellers who did not have a physical presence (a place of business, office, or employees) in the state to collect the state sales or use tax. Historically, this physical presence is what gave sellers what's called "nexus" to the state, and made it fair for the state to impose sales tax obligations.
After Wayfair
In Wayfair, South Dakota argued that this long-standing rule - requiring the physical presence of a seller in order for a state to collect sales or use tax - was outdated in the age of internet retail. States argued they were losing out on huge amounts of sales tax revenue due to the growth of online purchasing.
Ultimately, South Dakota persuaded the Supreme Court that the court's previous decision (26 years earlier) was incorrect, particularly given the significant technological and business changes that occurred over those years. The Supreme Court did something it almost never does: it explicitly overturned its prior decision and created new law applicable to the states.
How have the laws changed?
There are two ways that states responded to this newly enhanced power:
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Marketplace Facilitator (MPF) sales tax laws: Some states have passed and are enforcing marketplace facilitator sales tax laws. These laws legally allow online marketplace hosts like TPT to collect and pay these taxes to these states. We will collect and remit taxes for states with marketplace facilitator laws that apply to TPT (see full list here). In these MPF states, TPT will be registering and filing one return.
- Remote Seller sales tax laws: Some states updated their existing sales tax laws so that they apply to sellers outside of their own states. These are called "remote seller laws" or "internet sales tax laws." These include, for example, Maine and South Dakota. If a seller makes enough sales in a state (typically at least 200 transactions to buyers in that state in a year, but thresholds vary), that state can require that seller to collect and pay sales tax to that state even if they don't live or have an office in the state.
It's important to keep in mind that not all states have these laws, and even those that do include built-in safe harbors for small businesses. This means that for smaller Sellers (typically those who are not making more than 200 sales to an individual state, but thresholds vary), these remote seller laws will not apply.
TPT began collecting sales tax in applicable marketplace facilitator states. In states that don’t have applicable marketplace facilitator laws in place, TPT will only collect sales tax for you in states that you indicate you have registered for a sales tax license. Please see the Sales Tax and Your Store article to learn more.