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With Quill Dead You Could Now Have Sales Tax Nexus Everywhere

author photo of Michael Fleming

Life just got a whole lot tougher for eCommerce sellers. On Thursday, June 21, the U.S. Supreme Court in a 5-4 decision of the South Dakota v Wayfair case overturned the physical presence requirements of both the Quill and National Bellas Hess cases. (National Bellas Hess v. Department of Revenue, 386 U.S. 753 (1967), Quill Corp. v. North Dakota (91-0194), 504 U.S. 298 (1992))This is a huge win for the states. For sellers, it is a tremendous blow. Depending on a seller’s sales volume or the number of transactions, a seller could potentially have to collect tax across the country.

States have always required sellers to collect sales tax, once the seller has a link or connection with a state. We call this link or connection nexus. Up until now, there had to have been some sort of physical component of this link to create nexus. Not anymore.

Now nexus can be based on a number of sales or transactions - and nothing more. We call this an economic nexus. Per this decision, we now know that $100,000 in sales or 200 transactions a year is a substantial nexus. However, could $10,000 or 20 transactions be considered substantial nexus? Maybe. We will have to wait and see what the states do.

There are in excess of 20 states that have passed economic nexus statutes, rules, or regulations in anticipation of this ruling. Many of these states will start enforcing right away. However, there were 41 states plus DC that petitioned the court to repeal Quill. It will be interesting to see what these additional states will do. Will they copy SD or will they try lower thresholds?

This is bad news for sellers for so many reasons, but perhaps the worst is that states could go after sellers for back taxes, penalty, and interest. The court basically said that the prior courts were wrong about physical presence and overturned both the Quill & Bellas Hess cases. This means that states could go back to 1992 or even 1967. A state can’t actually go back before you started selling, and most states have initially implied they will not go backward, but I think we may see a few try to go back 1, 2 or 5 years.

Even if states don’t go backward, sellers now have to look at their sales volumes by state and/or start counting transactions. The states don’t make this easy as each state has its own thresholds. We will be posting those thresholds in our next post.

In addition, the states did not say that economic thresholds are the only way to create nexus. All other nexus standards still apply. So we still need to consider inventory, the activities of employees and even third-parties including affiliate programs in addition to these new economic thresholds.

I feel the states believe they have been given the green light to start pursuing companies aggressively. After today’s decision, I believe that states will now step up their enforcement efforts. I think we will see the discovery units of each state working overtime and adding resources.

While I cannot tell the future, if we are waiting for Congress or Amazon to solve our problems we might be waiting a long time. Congress first started looking at nexus in 1959 when they passed The Interstate Income Tax Act of 1959. They passed this as a temporary solution to a Supreme Court decision and said that nexus is so complex they have to study it before implementing a final solution. It is now 59 years later and we are still working with the temporary solution. So a do-nothing Congress is nothing new, at least when it comes to nexus. Perhaps we are better off without Congress getting involved. I am not a big believer that Congress can actually solves all our problems. There are always unintended consequences. Look at how well Healthcare or Social Security have turned out. So I am not waiting on any solutions from Congress, they may come, but I am not holding my breath.

As to Amazon collecting the tax for third-party sellers, I think that will eventually happen. However, it could take years for Amazon to start collecting the sales tax in every state, just as it took years for them to start collecting their own sales. Many issues will need to be settled and/or deals cut with states. And Amazon collecting sales tax is not a cure-all. It can actually make matters worse as sellers in WA are beginning to realize. Amazon is only responsible for sales tax going forward and they do not pay the B&O tax, just the sales tax. The B&O is a second tax on the sales tax return. Sellers are responsible for the B&O and all past exposure.

This decision was a big surprise to me and these are my first impressions. Over the next couple of days, there will be many such as myself providing additional information and comments on state reactions, actions, and potential paths forward. We will see many webinars, podcasts and much more written material. At the very least we need to start reviewing our sales volumes and transactions by state. There are some great tools out there that can make this task easier. Feel free to contact me for recommendations.

After your sales and transactions are determined by state, sellers should review the different state requirements. If you have nexus, and what you sell is taxable and your sales are material, you should consider registering to collect and remit sales tax.

If you have any questions at all please let us know, we offer free consultations.

Mike is the founder of Michael J Fleming & Associates (dba Sales Tax and More). Prior to beginning this new venture, Mike spent the better part of a decade as a Director with Peisner Johnson, an accounting firm that is focused entirely on solving state and local tax issues. Mike’s state tax knowledge is well rounded, but he is one of the country’s leading authorities when it comes to eCommerce, nexus, service providers, and drop shipping.

Comments or questions may be submitted by using the on-page "Comment" feature, subject to disclaimer at bottom of page. More specific questions or requests may be sent to Mike directly using the orange REQUEST link on his Firm Profile page.

Other recent “Small Business E-Commerce” posts by Michael Fleming:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.


26 Responses to With Quill Dead You Could Now Have Sales Tax Nexus Everywhere

  • Posted by Annette on August 14, 2018 9:40pm:

    Thanks for the post. Physical presence was arguably easier for cities. I haven't heard much of anything about the effect on cities and sales tax nexus. Any guidelines here?

    • Posted by Author photo of Michael Flemingmichaeljfleming on August 21, 2018 6:40pm:

      Great Question. I listened in on the Streamlined Sales Tax Agreement meeting. The meeting covered a number of topics about how to move forward after Wayfair. One of the speakers represented the council of mayors. The council of Mayors did not want simplification to mean they were cut out of the sales tax pie. We will see how this unfolds over the next year or so. In the meantime, if a state was a state that required the collection of local taxes it still does. In home rule states like Alabama where you have to register for locals separately, they have the Simplified Sellers Use Tax Program. This program allows you to charge a single rate for the state and then the state deals with the local jurisdictions.

      • Posted by Annette on August 21, 2018 6:49pm:

        thanks for the additional information!

  • Posted by joseph on June 30, 2018 10:08pm:

    Just a follow up question. On top of having clients in a privite practice I also have some though a 199-k reporting entitity as an independent contractor. Trouble is they report translations and gross amounts ND THEN take a platform fee. We do not have access to there loation. Futhuter since the COMPANY is the one that handles the money and then we get a cut is sales tax THERE responability our or ours? If ours but we don't have access to the clients information location zip code ect, how would we comply?

    • Posted by Author photo of Michael Flemingmichaeljfleming on July 5, 2018 5:40pm:

      Hi Joseph,

      I am not quite sure I understand the question, but I assume you are saying that company hires you as an independent contractor to coach their clients. If your services are taxable where you are located you would either charge your customer the tax or get a resale certificate in lieu of the tax. In this instance, it sounds like your customer is the company issuing 1099. If the service is taxable they would collect the tax from their customer and issue you a resale certificate.

  • Posted by jim7 on June 29, 2018 2:45pm:

    Thank you for this great post.
    We a mainly sell on Amazon, there is a law suit between South Carolina vs Amazon for who is the retailer of the 3rd party transactions. If South Carolina wins, do you think we don't need to count our Amazon's sales as part of nexus transaction? As the transactions in Amazon should consider sell to Amazon not the end user.

    • Posted by Author photo of Michael Flemingmichaeljfleming on June 30, 2018 12:12pm:

      Hi Jim,

      This is a great question and there are too many variables right now to definitively say. The biggest variable is that SC has not announced what their economic thresholds are. Maybee, they will come out like OK and make a distinction between remote sellers and marketplace sellers. Maybe they don't.

      A second variable is the details of the decision if SC wins. As of now, I think a settlement may be more likely because SC will not want to wait on collecting the tax while fighting this in court for the next five years. I think the SC politicians will pressure the SC DOR to settle, so they can pass legislation like WA or PA. But that is just my opinion.

      Right now many states are counting all sales including wholesale sales in the threshold calculations. With this in mind, if SC wins they may still try to include those sales even though they should not.

      We just don't know at this point and probably will not for five years when all the appeals of this case by either or both side are exhausted. The first round has gone to Amazon, who was not forced to collect the tax while the case was in litigation.

      Until there is resolution in the case I find it plausable that SC would count those sales in any threshold they bring forth.


      • Posted by Jim on July 1, 2018 8:20am:

        Thank you very much for the answer.
        We are small online seller and most of our products selling between $5 - $20. So for us, $100,000 is fine us but we will have over 200 transactions on many states. I don't believe a $2,000 ($10x200) annual sales give me substantial nexus to a state, but I'm disappointed the judges didn't think the same.
        I heard Kentucky have similar law effective on 7/1/18, does it mean if we pass the threshold we will need to register and collect sales tax in Kentucky now?

        • Posted by Author photo of Michael Flemingmichaeljfleming on July 1, 2018 9:03am:

          Hi Jim,

          There are two answers here. The technical and the practical. Technically the answer is yes. However just because the state says you need to do something does not mean it makes good business sense to do it. I believe we need to use common sense when determining if we will comply. In your example, it would cost more money, and time is money, to register and file returns. So it would be cheaper to wait until the state finds you and pay them out of your pocket.

          There are some advisors who may say that I am not taking the cumulative effect of years of back taxes penalty and interest. But I am. If something doesn't make sense today, it doesn't make sense no matter what number you multiply it by.

          Let's do the math. Kentucky has a state rate of 6% and no local rates. So on $2000 of sales, you would owe $120 in tax. In KY the usual filing frequency is monthly. So if you consider a cost per return of $20 your annual cost to file that $120 in tax is $240. Doesn't make sense to me. Even if we add 50% in penalty and interest to the number, $180 is still less than $240. Even if we listen to what other advisors say and look what happens if a state finds you five years down the road. Five times 180 is $900. Now no one wants to pay $900, but it will generally not kill us, especially when we look at the money we saved over 5 years. Five times $240 is $1200. So let's subtract what you would have paid from what the state will want: $1200 minus $900 leaves us with a difference of $300. So we save $300 by not registering to collect sales tax in this scenario.

          Now, I do believe that sales tax is vitally important as our sales increase, but we always need to examine what our risk is. Most sellers I work with, after examining their exposure choose their own threshold for determining when they want to register in a state. I can't make the math work when projected annual sales in a state are less than $3000, so none of my clients register when their sales are below that mark. Most of my clients choose a number between $3000 and $15,000 projected annually in a state for determining when they should register.

          Now if the state finds you, you will have to pay the tax, but it should be a small number that you have already determined you could live with by examining your exposure.

          I understand that even at these thresholds that sales tax is a tough pill to swallow, but it is something I think we all have to begin resigning our selves to.

          We are here to answer your questions and help you determine what thresholds make sense for you.


  • Posted by joseph on June 29, 2018 2:17pm:

    In what states are life coaching services taxable? and what s the nexus for those states? Do you think most states will work with sellers who are small value and looking to comply?

    • Posted by Author photo of Michael Flemingmichaeljfleming on June 30, 2018 1:43pm:

      Hi Joseph,

      Questions as to specific taxability generally require more information and some research to provide definitive guidelines. But here are some basics to steer you in the right direction. If the life coaching is performed live, most states will probably not tax the service. If they are pre-recorded there are a number of states who could try to tax them. The states of HI, NM, SD & WV tax most services so it is probable that life coaching is taxable in those states. The states of NM & WV have not yet issued guidance. HI is going live on 7/1/2018. The thresholds in HI are $100,000 or 200 transactions. A transaction is generally viewed as each invoice. SD has the same thresholds but has been sent back to the lower court for review. I anticipate it will be 30-90 days before they implement.

      Many entities are looking at changing the frequency of their invoices to avoid thresholds. For example, if you have 4 clients in HI and you invoice weekly then you have 200 transactions. If you invoice monthly you could have 16.66 clients and if you invoiced annually you could have 200 clients. Providing that you don't cross the $100,000 threshold prior to reaching 16.6 or 200 clients.


  • Posted by Kelsey on June 27, 2018 12:15pm:

    Hi Michael,
    I wanted to touch on your comment the possibility of $10,000 worth of transactions being considered substantial nexus, because that is actually the economic nexus law in Washington. Do you think that will be contested in Washington. In addition do you think the members of SST/SSTUA (streamlined sales tax) will increase with the decision in SD v Wayfair? I checked out a few sites, and they think SST makes things easier for small businesses.

    • Posted by Author photo of Michael Flemingmichaeljfleming on June 27, 2018 12:52pm:

      Hi Kelsey,

      I understand why many consider this an economic nexus, however, not all economic thresholds actually constitute economic nexus. WA is a case in point. The WA threshold is really a notice and reporting requirement issue, which is actually more onerous than sales tax. The thresholds are much lower and the penalties much much higher. They are governed by a separate set of rules and a different US Supreme Court Case. (Direct Marketing Association v. Brohl, 575 U.S. ___ (2015)) This case involved Colorado.

      The basic tenets of notice and reporting say that you must provide your customer with a series 3-4 of notices that say you are not collecting tax so the customer must pay the state directly and that you are required to turn over their information to the state at the end of the year. IN WA if you miss just one notice the minimum penalty is $20,000 and it quickly escalates from there.

      If you decide to "voluntarily" register then the reporting requirements no longer apply.

      The case in CO was litigated for almost seven years and went to the Supreme Court twice. The first time the Court said it was not a tax and sent it back to the lower court. The lower Court found for CO. It was appealed back to the Court who refused to hear it in December 2016. This paved the way for Colorado to implement on July 1, 2017, after which a number of states jumped on board.

      WA was allowed to start enforcing this on 1/1/2018 because it is not an economic nexus. While this may be contested, it will probally not be tested based onthe results of the latest decision as the court already said this is not a tax.

      If you want a chart on either economic nexus or notice and reporting tou may get them here:

      More states may join, but membership is not currently a requirement to enforce an economic nexus and most states that have not yet joined enjoy their independance.

  • Posted by John on June 25, 2018 4:13pm:

    Hi Mike,

    Great post, thank you.

    We sell office supplies only on Amazon FBA. Will states where Amazon doesn’t have warehouse expect us to file income tax return as well? Or will public law 86-272 still apply if there is no inventory, etc in the state?

    Thanks again.

    • Posted by Author photo of Michael Flemingmichaeljfleming on June 25, 2018 8:04pm:

      Hi John,

      Great question. If your only connection to a state is sales and you don't offer services like training, installation, warranty work etc, then PL 86-272 would still protect you.


  • Posted by Todd on June 23, 2018 7:02am:

    Hi Mike,

    Will SaaS companies selling B2B in the US be impacted by this decision? (i.e. need to charge sales taxes on SaaS products sold?)



    • Posted by Author photo of Michael Flemingmichaeljfleming on June 23, 2018 8:09pm:

      Hi Todd,

      Not all states tax SaaS. Out of 45 states plus DC roughly, 20 do. There are still a lot of issues that will need to play out over time, but I believe that the US states will try to enforce this against international sellers. If your sales into a state are above a threshold, the state taxes SaaS and your exposure would be material, I suggest taking a more conservative route and register to collect and remit the tax.


  • Posted by David on June 22, 2018 4:06pm:

    Hi Mike,

    Thanks for your post very informative. I had a question in regards to affiliate marketing. Does one need to remit sales tax if they are an affiliate promoting other merchants products e.g. clickbank affiliate

    Thanks again Mike.. will be following your other posts on this .

    • Posted by Author photo of Michael Flemingmichaeljfleming on June 22, 2018 5:14pm:

      Hi, David, you are welcome. Thank you for the feedback.

      As to your affiliate question I think you are safe. in the traditional affiliate relationship nexus only flows one way. so you are creating nexus for them if they didn't already have it.

      A question to clarify the relationship. Are you just sending them business and they are closing or are you closing and collecting payment?


      • Posted by David on June 22, 2018 5:19pm:

        Thanks Mike for taking the time to answer.

        I am just referring the product and sending them the business to their site. Payment is done on the merchant side.

  • Posted by Leah on June 22, 2018 6:24am:

    Thank you for the article, and the resources you will be sharing.

    What sales tax software or third party app do you actually recommend. My client is a startup selling on Shopify, and also on fairs and tradeshows all over the country.


    • Posted by Author photo of Michael Flemingmichaeljfleming on June 22, 2018 6:41am:

      Hi Leah,

      It depends on what you need the software to do and who will be using it. Since Shopify will calculate rates I assume you are talking about sales tax returns. If you will be preparing the returns I like the accountant's program at Avalara Trustfile. It provides you with a number of options. If your client will be using the service I like TaxJar and Avalara Trustfile. Both are good options for new startups. Taxify and Vertex are not far behind, so you have a number of good options. Since they are just starting out I would only register in their home state based on online sales, unless their business is already exploding. For the craft and trade shows you may need to register there if you will be making sales at the show. There may be exemptions in some states. For example, NV wants everyone to come to Vegas. So as long as you don't make sales at a show in NV more than 1 time a year, you don't generally have nexus. Any tax collected at the show is generally turned over to the show promoter who remits for you. If not you can send it to the state when you get back.


      • Posted by Author photo of Michael Flemingmichaeljfleming on June 25, 2018 8:08pm:

        Hi Leah,

        I have put some of the resources I promised on my website. Here is an announcement I made.

        If anyone is interested I have created three charts and posted them on my website. One is the economic nexus chart. It contains thresholds, effective dates, and a notes section. This chart does not contain the smaller threshold notice and reporting requirements. I have a second chart for those. They actually follow a different set of rules and some states have both economic nexus and notice and reporting requirements.

        The second is about notice and reporting requirements. These requirements have an economic component and I believe are worse than sales tax. There is information about thresholds, notice requirements, penalties for non-compliance and notes.

        The last is a marketplace facilitator third-party tax collection chart. It contains information on which states want Amazon and other Marketplace to collect the tax. You can see which states might be next for Amazon to start collecting the tax.

        I will be updating these charts as new information is made available.

        You can access these charts by going to my website at Click on resources in the upper right-hand corner and choose charts and matrices from the drop down. When you click on the name of the chart it will download.

        If You have any issues please let me know.

        • Posted by Author photo of Michael FlemingB on July 24, 2018 6:43pm:

          Hi Mike,

          I want to make sure that I am following your advice here.

          Are you suggesting that sellers who cross the 200 transactions threshold (with say, South Dakota or any state who is using the S.D. threshold) should consider setting a personal revenue threshold of $3,000 to 15,000 dollars to decide when they should register in that state OR...

          Are you suggesting that ALL businesses (regardless if they crossed the 200 transaction threshold) should consider registering for sales tax in a given state when their revenue to that state starts to exceed $3,000?

          On a related note, how much harassment do you think sellers can expect from other state’s governments if they maintain a presence on a marketplace but their sales are below the thresholds? Are we likely to receive nexus questionnaires, etc. just from maintain a store on eBay? Or do you think the states will contact PayPal to query sellers who exceeded thresholds and then contact these folks?

          • Posted by Author photo of Michael Flemingmichaeljfleming on July 24, 2018 6:48pm:

            Hi B,

            I am suggesting that we need to use common sense when deciding whether or not we should comply with a state and not just blindly follow what the state says. If you have crossed a threshold and your potential exposure is material then I believe you should register. If it's not material then don't.

            I think that all states will step up their discovery activities and we will see many more nexus questionnaires as well as more states pressing more platforms for seller lists.

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