It’s been four years since the Supreme Court made its landmark ruling in South Dakota v. Wayfair, Inc., ushering in a new era of sales tax rules and regulations for businesses making remote sales.
Since the Wayfair decision in June 2018, most states have adopted new rules defining nexus—or what establishes a sales and use tax obligation. Today, 45 states, parts of Alaska, and Washington, D.C., have adopted Wayfair laws requiring remote sellers to collect and pay sales tax based on transactions that take place in their jurisdictions. Every state with a general sales tax now has an economic nexus law that bases a sales tax obligation on a remote seller’s sales volume in the state. Similarly, every state with a general sales tax now also has a marketplace facilitator law that shifts the obligation to collect and remit sales tax from the individual seller to the platform facilitating the sale.
Unfortunately for businesses, no two state sales tax nexus laws are alike. In the years since Wayfair, state governments have acted swiftly with new laws, and businesses have had to adapt to changing rules and regulations governing the taxability of their transactions. Factors like awareness of Wayfair-related compliance obligations and lack of uniformity when it comes to economic nexus laws will play a significant role in shaping how businesses and governments will act over the next few years.
Business Sentiment of Wayfair
A recent survey of businesses conducted by NetReflector/Potentiate found that the awareness and impact of Wayfair have never been greater for companies of all sizes, from emerging small businesses to large enterprises. This was expected as Covid-19 pushed more businesses online and exponentially grew the number of remote sales across the US and around the world.
There is, however, a delta in confidence between small and large businesses, likely due to the differences in operations. For example, many small businesses are marketplace sellers whose taxes are handled by marketplace facilitators—so it’s not often their responsibility to know about these laws. Over time, businesses may forget why they’re collecting tax or why their marketplace is collecting tax for them. Eventually, we may see the terms “Wayfair” and “marketplace facilitator law” disappear from our lexicon because businesses will instinctively know that they have to collect and remit tax because online sales are taxable.
On the other hand, because of this monumental shift to remote and online sales, fewer businesses have done all that is needed to be compliant. According to the survey, only 33% of enterprise companies have implemented the changes needed to comply with Wayfair, while 74% of small businesses said they’ve implemented the changes needed to comply with Wayfair.
Another significant highlight from the survey is that more businesses are turning to technology to improve compliance, as 60% of businesses say they are using an automated solution to manage Wayfair laws and obligations. The rise in the adoption of automation signals that more businesses are realizing that tax is simply too complex to manage on their own. Understanding nexus obligations, registrations, returns, tax-exempt sales, and more all impact how compliant a business is, so automation that streamlines that entire journey is necessary to help businesses reach a greater level of compliance.
Senate Tackles Small-Business Challenges
At Avalara, we’re seeing these challenges firsthand. On June 14, I traveled to Washington to attend the Senate Committee on Finance’s hearing on the impact of South Dakota v. Wayfair on small businesses and remote sales. In addition to witnesses from the Government Accountability Office, Streamlined Sales Tax Governing Board, and Sales Tax Institute, we heard from representatives from two small businesses—Littleton Coin Co. and VIM & VIGR Compression Legwear.
The two small-business owners stressed that in the years since Wayfair, sales tax obligations have been more complicated and expensive. While neither of the two small business owners want Congress to eliminate remote sales tax requirements, they asked that Congress require states to create:
- A centralized clearing house for registration and returns;
- A centralized system for audits (e.g., one audit for all states each year);
- Protection from retroactive tax obligations;
- A single unified rate per state;
- Uniform product definitions within states and across states; and
- Uniform product exemptions across states.
The major theme coming out of the hearing was that minimizing the burden of compliance, especially for small businesses, through greater uniformity among states, will be the best path forward to help the business community stay compliant with Wayfair laws. There were also several questions about the Streamlined Sales Tax. All of the above are part of the Streamlined Sales Tax except for a single unified rate per state. States commonly did not join the Streamlined Sales Tax often because of the inability to conform to uniform definitions, and it is unlikely the opinion of those states has changed in the time since.
The Years Ahead for Wayfair Laws
As the past four years have shown us, the tax landscape has been dynamic and unpredictable for businesses in the wake of the Wayfair decision. Tax authorities continue to look for new ways to generate revenue, especially amid changing economic conditions within state budgets.
We can expect these evolving tax regulations to continue as more jurisdictions respond to the 2018 decision. Businesses will need to stay on top of these shifting rules, regulations, and requirements with dynamic strategies that leverage the power of technology and automation for their compliance requirements.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Scott Peterson is Avalara’s go-to resource for all things related to tax policy. Peterson, who was the first executive director of the Streamlined Sales Tax Governing Board and who worked there for seven years, also spent 10 years as director of the South Dakota Sales Tax Division and 12 years providing research and legal writing for the South Dakota Legislature.
We’d love to hear your smart, original take: Write for Us