Stand Your Ground! Substantial Nexus Lives After Wayfair
The U.S. Supreme Court decided in South Dakota v. Wayfair, Inc. that the U.S. Constitution does not require a physical presence in a taxing state in order for the state to impose a sales and use tax collection obligation on an out-of-state seller. It is time to decipher what remains of the substantial nexus standard. The good news is that the Court made clear in Wayfair that a substantial nexus between the taxing state and the business that it seeks to tax is required, albeit not a physical presence bright-line. The Court framed its overruling of National Bellas Hess, Inc. v. Department of Revenue and Quill Corp. v. North Dakota as a natural progression in its Commerce Clause jurisprudence away from “arbitrary, formalistic distinction(s)” and toward “a sensitive, case-by-case analysis of purposes and effects.” Therefore, in the absence of a bright-line, formalistic substantial nexus rule, the key will be to understand the relevant factors to consider when performing a substantial nexus analysis and how these factors relate to whether a state can successfully assert a taxable nexus.
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