If you’re a business owner, accountant or involved in the tax world in any way, you’ve undoubtedly been made aware of the Wayfair decision.
In short, that decision, which said that South Dakota’s economic nexus law was constitutional and opened the door for other states to do the same, effectively made it easier for companies to create nexus in a state for sales tax purposes, thus creating a collecting and filing responsibility.
Over three years later and every single state that has a general sales tax has implemented some form of Wayfair-related legislation, whether economic nexus or marketplace facilitation. However, because each state has the freedom to do so independently, tax rates and the triggers for these Wayfair laws vary wildly. For businesses, this lack of cohesion has created a tax burden that, for some, is nearly unbearable.
As previously mentioned, much of the complexity regarding Wayfair laws comes from the lack of uniformity on a national scale. However, additional complexity can be found in the application of this legislation, with many states also utilizing different components for measurement (gross sales vs. taxable sales) for Wayfair thresholds, on top of thresholds that differ state to state.
The other problem comes from the catch-22 that Wayfair legislation has created for online retailers. Companies need a certain amount of sales to keep making a profit, but if they do too much business in certain states, they may trigger economic nexus, resulting in additional money spent to stay tax compliant. To stay ahead of these costs, retailers need to do more business, but that may result in additional tax liabilities.
Previously innocuous things, like Black Friday, surges in online shopping and tax holidays, have suddenly become hidden traps for online retailers. A sudden surge in business can get these retailers caught in the sticky web of economic nexus and leave them unprepared for the tax consequences that follow.
The final hold-out state enacted Wayfair-related legislation earlier this year. As a result, remote retailers face economic nexus, marketplace facilitation or both in 46 states, plus Washington D.C. and Puerto Rico.
Ever since the Wayfair decision, various entities have proposed simplification solutions but there are more calls now than ever thanks to the pervasiveness of Wayfair laws.
The Streamlined Sales Tax Project and the resulting Streamlined Sales and Use Tax Agreement are two such efforts and actually pre-date the Wayfair decision. However, while the agreement proved popular in certain circles, only about half of states have adopted it since its implementation, limiting its effectiveness in regards to the Wayfair situation.
Companies like Etsy, which recently asked sellers on its platform to join it in advocating for a federal solution, have also spoken out regarding the increased burden Wayfair creation.
Over the last three years, some states, including Alabama, Louisiana and Texas have taken steps to simplify tax remittance for remote sellers. Several have also adjusted economic nexus thresholds to provide additional safe harbor for smaller business more heavily impacted by Wayfair legislation. (That said, other states have widened the net instead.)
Legislative bodies have also reviewed Wayfair legislation, with many acknowledging the complication these laws create but stopping short of proposing a specific solution.
However, despite all the discussion, there remains no overarching solution to the complexity of Wayfair legislation as of now. As states continue to feel the effects of the pandemic and look to the taxation of online retail as a source of income, it’s unlikely many will want to make concessions on their own Wayfair-related legislation.
While these conversations continue, retailers will have to deal with the ramifications. To stay tax compliant, businesses need to stay proactive about their tax liabilities and seek professional assistance if the burden becomes too great to bear on their own.
We answer questions around this topic daily – so if you call us to ask questions, you’re in good company!
If you have questions regarding your online sales tax liabilities, or any other state-related tax questions, please contact us today. We’re happy to clarify any multi-state tax issues you’re trying to navigate.
