Sales Tax Implications of Wayfair Decision – Updated Resource

The June 21, 2018 U.S. Supreme Court ruling in South Dakota v. Wayfair drastically changed the sales and use tax nexus landscape for all businesses. This ruling held that a state can now legally require an out-of-state seller to collect and remit sales tax on sales to customers in that state, even though the seller lacks an in-state physical presence. Historically, companies with sales of goods or taxable services in a state have not been subject to sales tax collection requirements as long as the company had no physical presence in that state. Now, when an economic or virtual presence exists, all companies without a physical presence will face potential collection and filing responsibilities in states that have adopted similar economic presence thresholds as the one at issue in the Wayfair case.

Following the economic nexus guidelines established by South Dakota, and quickly adopted by 35+ states since the June decision, a company in the current or previous calendar year would now have a sales tax registration, compliance, and possible collection responsibility if the state has enacted legislation similar to South Dakota. South Dakota’s economic nexus laws establish economic nexus with the state if the following criteria is met:  1) had gross revenue from sales of goods and services delivered into the state exceeding $100,000 in the current or previous calendar year; or 2) sold goods and services for delivery into the state in 200 or more separate transactions.  Most states apply a gross revenue standard of $100,000. This $100,000 gross revenue threshold is a fairly low standard, as most states have drafted their gross revenue standard to include revenue from exempt and wholesale sales.

We encourage businesses who have gross receipts from providing goods or services to out of state customers to discuss the immediate implications of this case with their tax professionals. It is important to note that manufacturers and distributors will likely see a substantial increase in the number of states in which the company has sales tax nexus and a registration and filing requirement. Companies that only make exempt sales, likely through all products being sold at wholesale, are still impacted by the Wayfair decision. These companies are still required to register and file sales tax returns in most states where bright-line or transaction thresholds are met. Additionally, these companies are also required to collect and maintain resale and exemption certificates from all customers. Failing to adequately maintain exemption certificates can expose the company to significant liability in the event of a state sales tax audit.

We Can Help

Now is the time to begin the registration and reporting process in states where economic nexus has been established.  We have updated our Wayfair SALT alert which details the state by state implications of the Wayfair decision. If you have questions about your particular tax situation or need help in evaluating the impact of the Wayfair decision on your business, please contact your Elliott Davis, LLC tax advisor.  Elliott Davis, LLC has a team of experienced SALT professionals who can assist you with your sales and use tax guidance needs.