How will South Dakota v. Wayfair affect your club?
INSIGHT ARTICLE |
You have probably heard some news about the recent South Dakota v. Wayfair U.S. Supreme Court decision, but what does this mean for the typical private club from a sales and use tax perspective?
Prior to the issuance of Wayfair, the U.S. Supreme Court ruled 26 years ago in Quill v. North Dakota that the Commerce Clause mandated a taxpayer must have some physical presence in a state to be subject to collection responsibility for the state’s sales and use tax. The presence of the taxpayer’s in-state customers, without more, did not create nexus and did not allow a state to impose its sales and use tax. This standard meant that vendors, sellers, or retailers would not have to collect sales and use tax in states they sold to where they did not have a physical presence.
The Wayfair decision was based on a South Dakota law enacted in 2016 which imposed a sales tax collection and remittance obligation on remote sellers without physical presence in South Dakota when gross revenue from sales of tangible personal property or services exceeded one of the following:
- 200 or more separate transactions
Since that statute was enacted, almost two dozen other states have passed similar laws or regulations.
From a sales tax collection perspective, it is unlikely that most private clubs will make sales in excess of $100,000 or 200 or more transactions in a given year in a state other than the state where the club’s facilities are located. If your club has significant out-of-state sales, the club should review sales information for other states while keeping in mind the thresholds noted above established in the Wayfair decision. As it stands right now, almost half of the states that impose a sales tax have some economic nexus provisions on the books – not all with the same thresholds as South Dakota, and it is expected that other states will consider enacting similar legislation throughout legislative sessions in 2018 and 2019.
From a use tax perspective, you may notice some out-of-state vendors not currently collecting sales tax starting to charge you that tax on your purchases. This could be beneficial to the club as the accounting staff would spend less time reviewing invoices for use tax issues – however, accruing use tax on purchases where sales tax was also paid would create refund opportunities.
Should the club have significant out-of-state sales activity, or if the club is unsure how Wayfair could impact interstate sales activity, please contact your state tax adviser to discuss compliance with economic sales tax nexus provisions and minimizing potential exposure.
Join RSM for a webcast on July 17 as we discuss the South Dakota vs. Wayfair decision and how it will affect our clients.
Economic sales tax nexus laws permitted by the Court; physical presence sales tax nexus is no longer the Constitutional standard.