South Dakota v. Wayfair and Streamlined Sales Tax
In the US Supreme Court ruling of South Dakota v. Wayfair in June 2018, the Court upheld a South Dakota law imposing sales tax collection obligations on out-of-state retailers with an economic presence in the state. The Supreme Court also highlighted three key features in its decision as “preventing discrimination against or undue burdens upon interstate commerce”:
- A safe harbor for sellers with little sales activity in South Dakota ($100,000 in sales or 200 individual transactions)
- No retroactive enforcement
- South Dakota’s adoption of the Streamlined Sales and Use Tax Agreement (SSUTA).
Membership in the Streamlined Sales and Use Tax Agreement is the key. SSUTA is an effort by states, local governments and the business community to simplify and reduce the burden of sales and use tax collection, administration, and compliance. SSUTA requires state-level tax administration, uniform definitions for products and services, simplified rate structures, uniform filing forms and exemption certificates, simplified tax returns and tax remittances.
As of November 1, 2018, 23 of the 46 states (including the District of Columbia) with a sales tax are full members of the SSUTA. The 23 full member states are Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Utah, Vermont, Washington, West Virginia, Wisconsin, Wyoming. The associate member state is Tennessee.
The benefit of doing business in a in a state that participates SSUTA is reduced tax compliance costs, because member states use the same product definitions, sourcing rules and methods to determine tax rates. The SSUTA provides sellers with tax administration software that is paid for by the member state. Sellers who use this software are immune from audit liability. Certified Service Providers assist remote sellers in determining what is taxable and collecting their taxes.
It remains to be seen whether SSUTA membership is a prerequisite for a state’s tax laws to satisfy the demands of the Court’s application of the Commerce Clause. Some tax experts believe being a member state of the SSUTA may be beneficial for states to comply with any future federal legislation resulting from South Dakota v. Wayfair.