Virginia Businesses Facing Potential  Sales and Use Tax Changes in 2018

States have wrestled with out-of-state and Internet sales and how to tax them. 

Virginia businesses selling in a multi-state environment may find that they have additional sales tax collection requirements in the near future as the U.S. Supreme Court revisited the physical presence requirement in South Dakota v. Wayfair, Inc. The Supreme Court ruled in favor of South Dakota stating that South Dakota and any other state may require out-of-state sellers with no physical presence in the state, but are selling via the internet or mail-order, to collect online sales tax from customers in the state.

This timeline details changes to sales and use taxes and sales/use tax registration and collection requirements impacting businesses operating in Virginia and other U.S. states over the years: 

• 2014 - At this time, majority of the states have not implemented economic nexus legislation. If a company is operating in the multi state arena, its only protection from income tax filing requirements may be through Public Law 86-272. In Virginia, sales of pre-written, or "canned," software in a tangible format (e.g., on CDs) are subject to the retail sales and use tax with an exception. 

• 2015 - Virginia ruled in Ruling of the Tax Commissioner PD 15-194 based upon facts that sellers who have inventory in a fulfillment center in Virginia are not required to register for the collection of the Virginia retail sales and use tax on on-line sales made to Virginia customers since they did not have sufficient activity in Virginia to require registration.  
• 2016 - With both South Dakota and Alabama taking economic nexus action in challenging the physical presence requirement of the Quill Corp. v. North Dakota decision, remote sellers should keep in mind that sales tax changes may be on the horizon.  
• 2017 - Legislation clarified that owning inventory that is for sale and located within Virginia in a fulfillment center, warehouse, or otherwise, creates sufficient connection with the state to require the owner to collect sales and use tax on all taxable sales to customers in Virginia.
• 2018 - The U.S. Supreme Court heard the oral arguments in the South Dakota v. Wayfair case where concerns were raised. Ultimately, the Supreme Court ruled against Wayfair, declaring that states may require online sales tax collection on sales to in-state residents. We may find that some of the states’ efforts to enforce use tax compliance, particularly on individual consumers, may be a thing of the past or it may be the focus of more state efforts. Virginia businesses selling in a multi state environment may find that they have additional sales-tax requirements in the near future as a result of the ruling.