Tax attorney Richard Lehman reviews South Dakota v. Wayfair, a recent United States Supreme Court tax decision
In his most recent published article, Richard S. Lehman comments on the case that overturns precedent about seller’s liability to collect and remit sales tax.
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The estimated impact on South Dakota is even higher than normal because South Dakota has no income tax, relying significantly on sales tax revenue. South Dakota estimated that it loses $48 to $58 million in lost sales tax. In order to remedy the problem of lost tax revenue, South Dakota passed a law that “requires out-of-state sellers to collect and remit sales tax “as if the seller had a physical presence in the state.” §1. The Act applies only to sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State.” The enforcement of the act was stayed “until the constitutionality of the law has been clearly established.” After the law was struck down in state courts due to US Supreme Court precedent, the Supreme Court granted cert.
Mr. Lehman2 points out that the majority opinion noted that modern commerce clause cases “rest upon two primary principles that mark the boundaries of a State’s authority to regulate interstate commerce. First, state regulations may not discriminate against interstate commerce; and second, States may not impose undue burdens on interstate commerce.” Built upon these principles, “[t]he Court will sustain a tax so long as it (1) applies to an activity with a substantial nexus with the taxing State, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to the services the State provides.” Acknowledging the criticism that the physical presence test has received, the majority opinion acknowledged that the test is no longer appropriate measure of substantial nexus. “The ‘dramatic technological and social changes’ of our ‘increasingly interconnected economy’ mean that buyers are ‘closer to most major retailers’ than ever before— ‘regardless of how close or far the nearest storefront.’” “[T]he real world implementation of Commerce Clause doctrines now makes it manifest that the physical presence rule as defined by Quill must give way to the ‘far-reaching systemic and structural changes in the economy’ and ‘many other societal dimensions’ caused by the Cyber Age.” Thus, the majority opinion overturned long established precedent of physical presence test and upheld the constitutionality of the South Dakota law. The case is South Dakota v. Wayfair, Inc., No. 17-494.
The review will be published in full on the Blog of Richard Lehman1 at https://richardlehmanblog.blogspot.com/
About Richard Sam Lehman, Florida Tax Attorney
Richard S. Lehman3, Tax Lawyer, has established a sophisticated private practice focusing on tax law. His background, education, and experience has distinguished him in this complex field. A published author and noted speaker, Mr. Lehman has carved a reputation as a powerful client advocate.
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Richard S. Lehman, Attorney at Law
United States Taxation and Immigration Law, LLC
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1 https://thelehmantaxlawlibrary.com/
2 https://www.youtube.com/channel/UCTH1JITaiKhUSC3MTxFVXYg
3 https://richardlehmanblog.blogspot.com/