Potential Threats and Planning Opportunities
In 2018, in a case called Wayfair vs. South Dakota, the Supreme Court held that state laws permitting taxes against businesses without a physical presence in that state are constitutional.
Wayfair was a sea change in the area of multi-state taxation (the last major decision on the issue from the Supreme Court had been in the early 1990s), but this area of law has not been dormant before that.
The proliferation of technology, advances in supply chain, and the explosion of the internet has made it easier than ever before to transact business in multiple states.
All of these developments have caused the state governments, especially in California, to rethink the concept of doing business here.
Unfortunately, many state ideas surrounding doing business here in California were for the benefit of the state collecting revenue (both from companies in and outside of California) rather than for the business community.
Translation: your business could have exposure for activities performed in a state several years in the past and you have now exposed yourself to sometimes 5-6 years of past due tax liability for all your sales or income earned in a particular state. For many of our clients, up to 9.25% of all of their sales volume in California and in other states where they have not been collecting tax is not exactly small potatoes.