The South Dakota v. Wayfair Inc. sales tax decision by the US Supreme Court does not mean all online vendors must begin collecting sales tax immediately.
The 5-4 decision means states have the right to collect sales taxes on Internet purchases. Not all states have similar economic nexus legislation on the books. The landscape will continue to evolve as states determine if existing statutes allow them to take advantage of this latest ruling or if new statutes need to be passed.
Many state legislatures are part-time, meeting only a few months of each year. Nevada's General Assembly meets every other year. Unless a special legislative session is called, or a Department of Revenue issues an administrative policy, it could take a year or more for new laws to be introduced.
How Important are Sales Tax Collections to States?
Sales tax is a significant source of revenue for every state. It is even more important in the seven states without a personal income tax. Florida does not have a personal income tax. More than 75 percent of the Sunshine State's state budget comes from sales taxes. Even in states with an income tax, sales tax revenue is still critical. In Massachusetts, sales tax collections are the second highest source of revenue behind income taxes.
What Will Happen?
As states struggle with increased costs and flat revenue, finding other ways to raise money for government-supplied services is a top priority. An Internet sales tax is an easy way to generate money for cash-strapped legislatures. I expect significant activity in this area over the next 18 months as states determine how best to capture the additional sales tax collections.
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