With its decision in South Dakota v. Wayfair, the U.S. Supreme Court substantially eliminated the distinction between brick-and-mortar business and e-commerce, for purposes of state laws obligating sellers to collect and remit sales taxes. In response to that ruling, remote sellers into the 25 states (and counting) that have adopted laws requiring them to collect and remit sales taxes might be tempted to consider moving some of their operations into those states. After all, they might reason, if they have to collect sales taxes anyway, it might be more efficient to move parts of their supply chain closer to the customer, particularly in states with lots of customers.

Before making such a decision, however, businesses would be wise to look beyond sales taxes to the entire range of taxes they might have to pay. In particular, despite all of the recent focus on sales taxes, businesses should not lose sight of the potential state and local income tax bills they could face should they establish a physical presence in any particular state.

In 1959, Congress enacted a law that severely restricts the power of states to impose income taxes on businesses that make sales into a state, but lack a permanent presence there. Public Law 86-272 (codified in 15 U.S.C. §381) prohibits states or localities from imposing a net income tax on income derived from interstate commerce into that state if: (1) the only activity of the seller involves solicitation of orders for tangible personal property, (2) those orders are approved or rejected outside the state, and (3) the property is shipped from outside the state. The Supreme Court has ruled that this law prohibits states from imposing income taxes on sales made by a business’ salespeople who do not maintain an office in the state, and whose only role is soliciting orders. Wisconsin Dep’t of Revenue v. William Wrigley, Jr., Co., 505 U.S. 214 (1992).

In considering how best to respond to Wayfair, businesses should consider whether any savings they might realize from moving operations to a state might be offset by their potential liability to pay state and local income taxes on sales made into that state. After all, it’s not just about the sales taxes.