Avalara > Blog > Communications > OTT impacts of Supreme Court repeal of physical presence precedent

OTT impacts of Supreme Court repeal of physical presence precedent

  • Jul 9, 2018 | Toby Bargar


In the wake of the Supreme Court decision to overrule the physical presence standard in South Dakota v. Wayfair, Inc., much of the discussion has centered on implications for internet retailers.

However, online retail isn't the only industry that could potentially be impacted by the ruling. Over-the-top (OTT) communications service providers have a lot to consider, too.

With a new door opened for states to tax sales by out-of-state businesses, VoIP, VPNs, and streaming content will now also likely be very much on their radar. As the court opinion states, "The Internet's prevalence and power have changed the dynamics of the national economy."

Perhaps nowhere is this more relevant than in the areas of streaming video, streaming audio, and other types of OTT communications.

Leveling the OTT playing field

Just as the landmark decision has been deemed a "win" for brick-and-mortar businesses competing with online retailers, so too are traditional content and communications providers encouraged by the ruling.

Many companies have long been concerned that the physical presence standard makes it difficult for traditional network providers, such as those with on-the-ground infrastructure for phone and cable services, to compete with out-of-state, over-the-top providers of VoIP, streaming audio, and video.

Now that states can enact economic nexus legislation or apply existing laws not currently enforced, many view this as an opportunity to have a level playing field of tax fairness.

Preparing for the next phase of OTT taxation

As we've mentioned before, the rapid pace of over-the-top streaming innovation leaves little doubt that taxation will continue to proliferate and evolve. Now that states have greater leverage, the implications could be significant — particularly when it comes to the highly complex web of communications tax. Whether a company offers standalone services or bundles OTT services and content with other core offerings, companies are likely to face increased liabilities for sales tax as well as communications taxes and fees following the court's ruling.

Suffice it to say that we're likely to see countless changes in taxing jurisdictions across the U.S. As companies revisit and reevaluate where they're filing and remitting taxes in the wake of South Dakota v. Wayfair, Avalara's communications tax team will continue to monitor state activity for the latest updates.

Unsure if your tax system is prepared to handle these requirements? Get in touch! Call us at 844-722-5747 or email comminfo@avalara.com. Our communications tax specialists are on hand and ready to help you navigate the changes.    

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Toby Bargar
Avalara Author Toby Bargar
Toby is an attorney and senior tax consultant in the Avalara Communications business unit. He regularly speaks about and advises customers on complex transaction tax issues, particularly in the field of communications tax and regulatory surcharges.