Let’s Break It Down: The South Dakota v. Wayfair Ruling

Implications for Canadian Businesses Selling Into The US

Just when Canadian businesses thought conducting business in the US was confusing enough, the June 2018 US Supreme Court Ruling in South Dakota v. Wayfair means changes in sales tax laws for Canadian businesses selling into the US.

Facet Advisors exists to simplify tax law implications for our clients. Let’s break down what you need to know if you are currently or contemplating selling into the US.

The History

Businesses that conducted sales via mail order or internet sales were once exempt from having to pay state sales tax if there was not a physical presence (ie. property, leases, employees and/or agents) within that state. In 1992, this was challenged in the Quill Corp. v. North Dakota case. While Delaware-based Quill sold office supplies and equipment into North Dakota via mail and telephone sales, there was no physical presence in North Dakota. At that time, the Supreme Court ruled that in order for sales tax to be imposed, there must be a physical presence within the state.

What Happened

With the rapid growth of e-commerce sales since the 1992 Quill ruling, the US Supreme Court overturned it with the South Dakota v. Wayfair ruling. Wayfair, an online furniture retailer, argued that South Dakota’s 2016 law imposing sales tax for out-of-state retailers with sales exceeding $100,000 or 200 transactions annually went against the 1992 Quill Corp v. North Dakota ruling. However, the Supreme Court found “that the physical presence rule of Quill is unsound and incorrect” and that a business can have a significant financial impact on a state without having a physical presence there.  

That’s Interesting… How does this Impact Me?

While Canadian companies without a physical presence in the US were once exempt from paying state sales taxes, this might not be the case. Many US states are now following in South Dakota’s footsteps, imposing sales tax laws similar to South Dakota’s. As such, Canadian companies selling into the US need to reassess their tax practices to ensure they are compliant with each state they sell into.

How Facet Advisors Can Help

As both Canadian and US Tax Specialists, we can help you understand how your business is impacted and help you build a plan for implementing any changes to your current sales and tax practices. Call us today if you are currently or contemplating selling into the US so we can help set you up for success.