The year after Wayfair: An update
In the year since the Supreme Court’s decision in South Dakota v. Wayfair was handed down, the case continues to have a major impact on the business world. Supplementing the physical presence nexus standard with an economic one, the ruling allows states to collect sales and use taxes from many more out-of-state sellers than in the past.
The response was quick. As of today, nearly every state in the U.S. has enacted economic nexus legislation. Many states looked to South Dakota’s model for guidance, generally following three aspects highlighted by the Supreme Court:
- Safe harbor for small sellers. South Dakota imposes a sales tax collection obligation on remote sellers only if they have more than $100,000 in sales or at least 200 transactions in the state in the current or previous calendar year.
- Prospective enforcement. South Dakota is prohibited from applying economic nexus retroactively.
- Membership in the Streamlined Sales and Use Tax Agreement (SST). Created in 1999, the Streamlined Sales and Use Tax Agreement (SST) is the result of a joint effort between state and local governments and the business community. The goal is to simplify sales and use tax collection and administration for all sellers and all types of commerce by making sales tax administration requirements less burdensome. Participating states must simplify and centralize aspects of sales tax administration.
Overall, in addition to tracking its physical presence throughout the states that impose a sales tax, businesses must now also monitor their sales and/or transactions in those states, except in Florida, Kansas and Missouri, which have not yet enacted an economic nexus statute. The remaining 42 states, plus the District of Columbia, however, have their own filing schedules and deadlines, and comprise more than 10,000 different tax jurisdictions.
Adding to the complexity is the fact that the laws and rules are changing continually from state to state, sometimes with very little notice. For example, although more than 20 states use the $100,000 sales/200 transactions threshold, the types of sales that must be totaled and compared to the threshold vary depending on the state. Some states include electronically transferred products, and others may include services and/or exempt sales.
While the Wayfair ruling didn’t give states free rein to place excessive burden on interstate commerce (some laws may be challenged in court), it did dramatically increase complexity. It’s up to businesses to stay diligent when it comes to managing sales tax nexus in this ever-changing landscape.
The experienced tax professionals at True Partners Consulting can help you determine where you have nexus, provide ongoing monitoring services to see when new nexus is established, help you register in new jurisdictions and navigate the tasks related to establishing new nexus. To learn more about sales and use tax contact Christina Edson at Christina.Edson@TPCtax.com.