This is the fourth in a series of articles written for MICPA members examining the far-reaching impact of the Supreme Court’s decision in South Dakota v. Wayfair, Inc.
As discussed in a previous E-News article, (MICPA News June 26, 2018), the recent Wayfair decision removed the physical presence requirement of the Commerce Clause.[i] In general, a state may tax an out-of-state company if two constitutional limitations are satisfied – one under the Commerce Clause and another under the Due Process Clause. The Commerce Clause requires that a state tax does not unduly burden interstate commerce. The Due Process Clause requires that a company has at least minimal contacts with the state that seeks to impose a tax.
Although many state tax disputes previously focused on the Commerce Clause, the fact that Wayfair lowered the Commerce Clause’s bar likely means that the Due Process Clause will be significantly more important in deciding whether a state can require out-of-state companies to collect sales tax. Companies must now consider the due process doctrine to determine if enough connection exists for the state to have jurisdiction over them.
Foster Swift Collins & Smith PC
Tax Law Blog
July 26, 2018