Tax & Assurance Guidance

Wayfair: A Year Later

Posted on October 1, 2019 by

Sue Tuson

Sue Tuson

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It’s been over a year since the US Supreme Court’s ruling in South Dakota v Wayfair[1]overturned the long-standing physical presence standard for imposing a sales and use tax collection responsibility.  Wayfair overturned the requirement for a physical presence in a state that was established in the 1992 case, Quill Corporation v North Dakota[2].  Over the past year, almost all the states that impose a sales/use tax have adopted an economic nexus standard established by Wayfair.

Overview

As a reminder, the South Dakota standard that was upheld required remote sellers to collect sales tax if they had established economic nexus in South Dakota.  The standard adopted was a bright-line test of either $100,000 of sales or at least 200 transactions.  As most of the states have jumped on the economic standard bandwagon, it is important for businesses to monitor sales by state and the changing standards in the states were sales are occurring.  Businesses continue to struggle with compliance due to the fact that there is no one consistent standard applied across the various state taxing jurisdictions.  What is clear is that this change has impacted many businesses, not only the giant on-line retailers.

Foreign Impacts

Foreign businesses are subject to the same standards as domestic businesses when it comes to sales/use tax.  This means that foreign businesses that are remote sellers and meet the economic nexus standard will be responsible for collecting and remitting sales tax to the appropriate jurisdictions when selling to consumers.  If sales are being made B to B for resale, those sales will likely be exempt as long as the proper exemption certificates are obtained relieving the seller of any potential liability.

What should a business be doing to evaluate their sales/use tax filing responsibilities?

  • Start by identifying the type of sales transactions that are occurring B-B, B-C, drop-ship arrangements, SaaS
  • Source the sales to the taxing jurisdictions
  • Determine the nexus standard that applies to the jurisdiction, the date the nexus standard was adopted and whether or not the filing threshold has been met
  • Obtain the documentation for exempt sales
  • Consider the states with the larger exposure immediately to mitigate further exposure
  • Register where applicable and file returns, even if zero, to start the statute of limitations running
  • Be ready to answer customer questions if you begin collecting sales tax when in the past you did not

Sales tax is a gross tax on sales so it’s important to manage the risk associated with this type of tax.  To learn more, contact Clayton & McKervey.

[1] South Dakota V. Wayfair, Inc., Dkt. No. 17-494 (U.S. S. Ct. 21 June 2018)

[2] Quill Corporation v. North Dakota, SCt, 504 US 298; 112 SCt 1904; 119 L Ed 2d 91 (1992).

Sue Tuson

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With her advanced technical skills and experience with complex global businesses, Sue is known to be a creative & responsive international tax advisor.

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