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The Supreme Court decision in South Dakota v. Wayfair may bring new tax obligations to nonprofits that sell to purchasers in states where they have nexus.

Tax strategies

Nonprofit Tax: Court Overturns Physical Presence Rule for State Sales Tax

  • Kathleen Thies
  • David Trimner
  • 7/5/2018

On June 21, 2018, the U.S. Supreme Court issued its highly anticipated decision in South Dakota v. Wayfair. In this 5-4 ruling, the court overturned its 1992 ruling in Quill Corp. v. North Dakota, which held that sellers must have a physical presence in a state before they can be required to collect sales tax there.

While the facts of the Wayfair case involve a for-profit remote seller, this decision has significant implications for nonprofit organizations as well. Even though nonprofit organizations — including associations, colleges, and universities — are generally exempt from paying sales tax on otherwise taxable goods and services that they use in the course of performing their nonprofit functions, they are generally required to collect sales tax on items that they sell to purchasers in states where they have nexus.

Following the Supreme Court ruling, nonprofits should be prepared to comply with thousands of state and local taxing jurisdictions with varying definitions of nexus, taxable goods, and enumerated services.

Examples of sales by nonprofits that may trigger a sales and use tax collection requirement as a result of the Wayfair case include:

  • Your organization sells merchandise online to buyers in other jurisdictions.
  • Your organization sells items at meetings and conferences outside your own jurisdiction.
  • You perform certain services that benefit customers in jurisdictions in which such services are subject to sales tax.

How we can help

CLA’s nonprofit tax and state and local tax professionals can help you determine where you should be registered for state sales and use tax by conducting a comprehensive analysis of your organization’s overall nexus profile.

Our sales tax nexus assessment can help you avoid potentially triggering audits for prior year nexus by simply registering for sales tax in new states, and includes the practical aspects of collecting and remitting sales tax (e.g., collecting exemption documents, systems considerations, and overall process review) in new states.