Sales and Use Tax Update

On June 21, the Supreme Court issued a major decision regarding sales and use tax and how states can collect these taxes in the Wayfair case. Previously, physical presence was required in a state before a state could impose sales and use taxes as decided in the Quill and National Bellas Hess cases. In the Court’s 5-4 decision, the Court concluded that the physical presence sales and use tax nexus rule was “unsound and incorrect.” It then went on to state that the Quill and National Bellas Hess court cases “should be, and now are, overruled.”

What does this mean for taxpayers? It now means that sales to states where taxpayers don’t have physical presence (e.g. online or remote sales) could be subject to sales or use tax. Taxpayers and their advisors will have to monitor the various state rules and properly remit sales or use tax. However, many states have de minimis thresholds, so it is possible that a small amount of sales in a particular state would not be subject to theses taxes.

How does this case impact Iowa? It goes along with the bill Governor Reynolds signed into law on May 30, 2018 which requires remote sellers that exceed certain thresholds to charge the same sales tax as “Iowa main street” businesses. These changes will take effect on January 1, 2019 and only apply to businesses with remote sales of at least $100,000 or 200 or more separate sales transactions.

As always, we will keep you updated on this issue and if you have any questions, please contact us at (515) 288-3279.