Evolution of ‘Wayfair’ and Remote Sellers

Nearly two years have passed since the U.S. Supreme Court sided with the State of South Dakota to overcome the physical presence test in its June 21, 2018 ruling in South Dakota v. Wayfair, Inc. Prior to Wayfair, the Court required retailers to have physical presence in a state before they could be responsible for withholding sales tax in that state. Many things changed quickly after the ruling and some things evolved more slowly over time, so let’s take a look at where sales tax nexus stands today.

Many states were eager for new tax revenues, so remote seller laws began popping up immediately after the June 2018 ruling. These new rules established economic nexus rules requiring remote sellers to collect and remit sales tax based on sales and transaction counts. Most adopted some variation of the model outlined by South Dakota in the Wayfair case, which requires registering for sales tax upon reaching $100,000 of annual sales or 200 separate transactions. Numerous variations can be found, with California, New York and Texas establishing the highest sales thresholds at $500,000. Many states also decided to avoid transaction thresholds to prevent very small businesses from filing returns. Today, there are only two holdouts, Florida and Missouri. All other states that impose a sales tax, including the District of Columbia, have adopted some form of sales and/or transaction threshold to measure sales tax nexus.

Questions also arose from taxpayers in various industry groups, such as distributors that primarily sell exempt for resale. For example, if your company’s California sales are 100% exempt for resale then you can probably avoid filing in that state altogether even if your sales exceed the $500,000 threshold. But if your business has a mix of wholesale and retail sales, say $500,000 wholesale and $50,000 retail, then California would require registration and collection of sales tax on the retail sales.

Remote sellers have all felt the increased compliance burden since Wayfair. Because of the thousands of state and local taxing jurisdictions, management of the sales tax function can overwhelm staff quickly. Some combination of software and/or outsourcing sales tax compliance is often needed for businesses to keep up. Manually determining proper state/local tax rates when generating invoices and then tracking each of those sales and tax amounts for each of those jurisdictions consumes employee time, so companies must decide on hiring, outsourcing and/or automating with software.

Boulay Can Help

Boulay has been staying on top of these developments and we can answer your questions and help with compliance. Many of our clients need occasional help with sales tax questions, state income tax questions, determining where to file returns, dealing with state tax notices/audits while others want to offload their entire sales tax compliance burden. To learn more, contact a Boulay advisor at 952.893.9320 or learnmore@boulaygroup.com and ask about our state and local tax services.