With the landmark U.S. Supreme Court South Dakota vs. Wayfair decision turning 3 in June of this year, you’d think we could be grateful that this historic ruling is finally leaving the very confusing Terrible Twos behind. Unfortunately, confusion and uncertainty still reign for many businesses and with 43 states now in the business of collecting sales tax, the risks of non-compliance can be alarming. Here, we look at two areas of uncertainty that still surround Wayfair and how we are helping businesses gain confidence in their compliance.
While nexus pre-Wayfair related to having a physical presence in a state, the Wayfair decision means that states can create a sales tax collection obligation based on a remote seller’s economic activity in the state – an economic nexus.
In addition to economic nexus are marketplace facilitator laws. These laws affect major online ecommerce businesses (often referred to as facilitators or aggregators), such as Amazon, eBay, etc. They are responsible for the calculation, collection, and remittance of sales tax for transactions made on their sites if:
• They have a physical presence in a state,
• Their sellers have a presence in the state, or
• The collective annual sales of the facilitator (ex: Amazon) and sellers (ex: third party selling on Amazon) in the state exceed the sales tax registration threshold, thereby qualifying them for economic nexus.
Of the 45 states with sales tax, 43 have begun collecting sales tax based on economic nexus. The legislatures of remaining two: Florida and Missouri, are exploring options. As recently as February 2021 they have indicated a desire to implement new solutions within the few years.
Even so, third parties who sell on the major online platforms (Amazon, et al) are required to collect sales tax from their buyers if they have nexus in Florida or Missouri. And at high volumes, those sellers may find they have nexus in Florida and/or Missouri because Amazon has fulfillment centers in both states - creating sales tax nexus.
Further, it is likely that with the booming growth of home food delivery businesses (GrubHub, DoorDash, etc.), states that are looking for additional tax revenue will turn their attention to these businesses as marketplace facilitators.
Threshold: The Supreme Court’s decision on Wayfair said that the South Dakota thresholds of $100,000+ in sales or 200+ transactions were sufficient to trigger sales tax. Yet, the decision did not set that standard for each (or any) states. As a result, states vary in the dollar thresholds and the transaction number thresholds; at the same time, some states require only one threshold to be met, others require both. There are also questions on which sales qualify as taxable sales for nexus purposes. On top of this, states change their dollar and transaction thresholds and qualifying for thresholds from time to time. Some states are moving on from the transaction thresholds and focusing purely on the sales limits.
There is no single rule on thresholds, so businesses who operate in multiple states find themselves constantly having to monitor and ensure they’re using the right measurements.
We have a team of experts that take a pragmatic approach to your nexus reviews and analysis, educating your business leaders to help determine the best course of action for sale tax registrations, calculation, and collection responsibilities. If you are just starting this journey, feel free to reach out to us, we’d be happy to have an introductory conversation and help you figure out the best approach for your business.