For the 45 out of 50 states that have some form of sales tax, the June Supreme Court decision in South Dakota v. Wayfair, Inc. was a watershed moment – overturning more than 25 years of precedent that kept them from collecting sales tax on online sales from out of state.
The original Quill ruling made it so that only companies with a physical presence, or nexus, in the state could be tasked with collecting sales tax on in-state sales. By overturning this ruling and opening the floodgates to states like South Dakota (and more than a dozen others) who have implemented new laws to collect those taxes, the dynamic has shifted. In no place is this more apparent than in NOMAD states that don’t currently collect sales tax.
Retailers in New Positions to Think About Sales Tax
There are currently five states that don’t collect any type of sales tax (Oregon, New Hampshire, Alaska, Delaware, and Montana), and retailers in those states have never been expected to think about sales tax or make it part of their business processes. These 5 states are collectively known as the NOMAD states, from the first letter of their names.
The issue hit hard in June, with states like New Hampshire taking almost immediate action to address it. Governor Chris Sununu called for a special legislative session (source no longer available) in the attempt to pass new bills that would require new approval processes for collecting sales tax in New Hampshire, which currently has no processes in place to do so. Additionally, legislation has been introduced this summer by senators from New Hampshire and Oregon to overturn and circumvent the Supreme Court ruling, citing state’s rights.
Whether these efforts work or not remains to be seen, but the impact on the retailers in these states is real, as they will now be responsible for collecting and remitting taxes in other states when they were never before expected to do so.
Shoppers Paying Sales Tax for the First Time
While Wayfair impacts businesses selling from NOMAD states to those that do collect sales taxes, there are other situations in which sales tax is being charged by states to residents and shoppers in these states. New laws in states like Florida, for example, require that any goods shipped into the state directly after purchase, even if purchased in another state, are subject to Florida State sales taxes.
The concern for residents and visitors is that NOMAD states lose the advantage they long had for not having a sales tax. People would cross state boundaries and purchase items in these states to leverage the lower overall cost. That said, even as they pursue new legislation to address these changes, the law was always clear. If you purchase an item and bring it back home with you to a state with sales tax, you are liable for the use tax on that item.
The difference is that under older laws, this was nearly impossible to enforce, with only 2% of people accurately filing and paying the use tax they owed. New laws, the Wayfair decision, and creative implementations of tax collection are addressing this in ways that will impact NOMAD states, who must now figure out what options they have.