Spotlight: State Tax, the Next Tax Reform Frontier

No two states are the same, especially considering that regulations and guidance are constantly changing. Companies now must know how the changes caused by tax reform affect their home state. Those companies that have a presence in more than one state must ensure they’re completing the appropriate due diligence to know they’re protected on all fronts; in light of federal tax reform, that need has only grown. 

Some evolving regulations will transcend state lines, including the debate over state tax nexus, specifically the South Dakota v. Wayfair, Inc. case that will be heard by the U.S. Supreme Court. In this case, South Dakota is attempting to overturn the physical presence nexus standard for the collection of sales and use taxes, which could potentially impact online sellers ranging from small businesses to large entities like Amazon. 

Should the Court side with South Dakota, the implications are extraordinary for e-commerce, as it becomes more likely that states will be encouraged to enact similar sales and use tax economic nexus legislation. It is also conceivable that the Court could uphold Quill, sending the message to states that Direct Marketing Ass’n v. Brohl is a useful roadmap for enforcing sales and use tax compliance. Alternatively, the Court could overturn Quill, but remand Wayfair back to the South Dakota Supreme Court for proceedings consistent with the Court’s decision, while leaving it up to state courts to decide which economic nexus thresholds pass constitutional muster.


“With the passing of federal tax reform, we expect many states will enact new tax legislation in the coming months. As companies consider their total tax liability, state taxes will likely get more attention as they become a much larger percentage of companies’ overall tax structures. Given the many different state tax regimes that currently exist, it will be interesting to see how each reacts to the federal changes.” 

Partner and National Leader of BDO’s State and Local Tax Services practice


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