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State and Local Governments May Collect Use Tax on All Online Sales Rules U.S. Supreme Court

June 21, 2018
The U.S. Supreme Court issued its decision in South Dakota v. Wayfair on June 21, ruling that state and local governments can require vendors with no physical presence in the state to collect use tax.
 
According to the decision, “economic and virtual contacts” are enough to create “a substantial nexus” with the state allowing for the state to require remote sellers to collect and remit use tax.
 
With this ruling, the Supreme Court overruled more than 50 years of precedent that had held that some physical presence in the state was a requirement in order for the state to require an out-of-state vendor to collect and remit use taxes.
 
Under prior law, where a vendor was not required to collect and remit sales tax, the purchaser of that vendor’s goods was still required to pay a use tax to the state. However, most consumers fail to do so. The implications for California’s budget are substantial. The Board of Equalization estimated that for FY 2018–19, the total local use tax revenue losses related to e-commerce and traditional mail order sales will be $879 million.
  
For more background on this case, please see the Legal Notes article from the June 2018 issue of Western City magazine.


 
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