Supreme Court overturns physical presence standard - now what?

South Dakota v. Wayfair - Key considerations

What is it?

In the landmark case of South Dakota v. Wayfair, the US Supreme Court overturned the Quill physical presence standard, finding it “unsound and incorrect.” Justice Anthony Kennedy delivered the opinion of the Court, stating that Quill imposes the sort of arbitrary, formalistic distinction that modern Commerce Clause precedents disavow in favor of a sensitive case-by-case analysis of purposes and effects.

The Court concluded that the doctrine of stare decisis no longer can support the prohibition of a valid exercise of the state’s sovereign power. The Court noted that South Dakota law includes several features intended to prevent undue burdens on interstate commerce, which include no obligation to retroactively remit the sales tax. The case was remanded for proceedings not inconsistent with the opinion.

Why is this relevant and what is the potential impact?

  • Most states have expanded their nexus standards in the wake of the decision, requiring sales and use tax compliance for companies based on their in-state receipts or transactions.  Sellers with no in-state physical presence and no previous filing obligation will need to manage this impact.
  • Companies will need to determine what goods and services are taxable in the new filing jurisdictions and implement appropriate procedures to manage the increased number of filings.
  • Companies will not only have to consider where they have additional filings and the potential ASC 450 impacts, but they will also need to consider updating their systems and infrastructure with tax software, analytics, RPA/BOTs to address the impact of the Wayfair decision on a go-forward basis.
  • The ruling may also impact companies involved in M&A transactions with prior sales tax exposures and/or escrow accounts.
  • Additionally, although Wayfair primarily focused on sales taxes, there may be broader state tax nexus implications related to other taxes, such as income taxes.

Types of companies who may be impacted

  • Retail and consumer markets
  • Manufacturers/wholesalers
  • Technology: e-commerce retailers, digital service providers, software sellers, online gaming or similar sellers of electronic products
  • Companies with merger and acquisition activity
  • Inbound retailers and private companies
  • “Small Business”
  • Private Equity or Portfolio Companies

Learn more

Webcast replay: 

Wayfair decision - Impact on tax processes and system implications
 

Register

Webcast replay:

State and Local Tax - Quill overturned by Supreme Court - What's Next?
 

Register

{{filterContent.facetedTitle}}

{{contentList.dataService.numberHits}} {{contentList.dataService.numberHits == 1 ? 'result' : 'results'}}
{{contentList.loadingText}}

Contact us

Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

George Famalett

George Famalett

Partner, National Indirect Tax Leader, PwC US

Eric Burkheiser

Eric Burkheiser

Partner, Income Tax Leader, PwC US

Follow us