Wayfair: Dazed, Confused, Uncertain? Don’t Worry You’re Not Alone.
By Joni Johnson-Powe, CEO of Taxnologi
I’m sure you’ve heard it over and over and over again…the recent Wayfair ruling will have a significant impact on how and when retailers are legally required to collect sales and use tax in states where they make remote sales. Not only have I also heard this resounding warning but as a practitioner, I’ve had the same conclusion. However, as my team has been helping clients with software configuration updates, review of sales by state, and analysis of their overall footprint, I am not completely sure how it will all play out. Honestly, there are some practical questions for which I don’t have definitive answers.
What we do know is this: Wayfair held that states with an “economic nexus” requirement for collecting and remitting sales taxes can enforce it, so long as those statutes require a “considerable” amount of business before sales tax collection responsibilities are imposed. “Considerable” is statutorily defined as either a minimum dollar amount of sales or a minimum number of transactions; which are sufficient enough to create a sales and use tax filing responsibility. In the Wayfair case, the minimum thresholds in South Dakota were $100K or 200 transactions in a calendar year period. There are 23 other states with similar “economic nexus” thresholds.
So, what’s unclear? A lot. For instance, is $100K or 200 transactions the minimum standard states may impose or is $55K or 125 transactions also “considerable”? How about the timing of when these thresholds kick-in? While the state thresholds may be definitive based on dollar amounts or number of transactions, what isn’t so clear is the timing of when a company should start collecting and remitting in light of Wayfair. The point at which these thresholds start is also uncertain since the Wayfair ruling comes halfway through the calendar year and after the effective date for several states’s economic nexus laws. There are even states which have an “economic nexus” rules dated back to 2016 or 2017.
While we don’t expect most states to require a retailer to remit tax for sales made in 2016 or even 2017, we are not sure if the nexus threshold period should be evaluated as of:
- June 21, 2018 when the Wayfair ruling was issued,
- July 1, 2018 since it’s the start of a new filing period,
- January 1, 2018 since it’s the start of the calendar year, or
- Some other time in the past or in the future.
Like sales tax rates, tax base, and definitions, the states vary widely on effective dates and thresholds for economic nexus rules. See the attached link for a list of states, effective dates, and thresholds: http://www.taxnologi.com/economic-nexus-july-2018/.
Thankfully, a couple of states have addressed the issue of when out-of-state sellers must begin collecting sales tax. For instance, Alabama has stated that online retailers should start collecting October 1, 2018. Most other states have yet to provide similar guidance.
Although there’s hope that Congress will require some uniformity in the application of the Wayfair ruling for consistency purposes, given that they declined to take action after the Quill case (which was 26 years ago) we’re not holding our breath.
My recommendation is that businesses both small and large should start to think about how these changing nexus standards will impact their company. Companies should begin holistic tax planning as collecting sales tax is more than just flipping “on” a switch, regardless of whether you are already collecting sales tax in some other states. Other considerations to Wayfair compliance include: Secretary of State filings, Department of Revenue filings, reporting and remitting considerations (e.g., setting up state tax authority vendors in your ERP or accounting systems), taxability matrix updates, state income tax implications and the list goes on. Talk to your tax advisor or feel free to email us at firstname.lastname@example.org if you’d like to discuss your particular situation.