It is hard to believe that it has been just over four years since the landmark decision in the Supreme Court case of South Dakota v. Wayfair (2018) that changed the sales tax landscape across the country.
The decision made it so that states could require companies who met certain sales thresholds to collect and remit sales tax on sales, even if the company did not have a physical presence in the state. The ruling, however, did not automatically make economic nexus the standard in every state. Since it was a South Dakota case, the ruling technically applied just in that state until the other states individually changed their statutes. Since then, states across the country have enacted similar legislation based on the Wayfair decision. As of today, every state that has sales tax has enacted some sort of economic nexus law.
In the past four years, we have covered many sales tax issues related to Wayfair and economic nexus. As with most areas of multi-state tax legislation, even though every state now has economic nexus requirements, they are all complex and can vary, so questions often arise. Today, we will discuss Wayfair’s significance four years later and what you can expect for the future of economic nexus challenges.
Wayfair’s Significance In 2022
NetReflector/Potentiate surveyed hundreds of businesses to gauge the impact of Wayfair four years after the landmark decision. Key findings of the study include that awareness and impact of economic nexus have never been greater for businesses of all sizes and is particularly high for smaller businesses. Not only are more businesses than ever aware of economic nexus, they are also feeling the effects more than ever before, with 83% of all respondents recognizing that Wayfair has impacted how their company does business – the highest number since the survey was first conducted in 2019.
The survey also found that fewer businesses believe they’ve done all they can to be compliant. While informal, we can share that we are also still fielding calls daily from companies who are becoming more familiar with the economic nexus concept, but that still need help navigating all the nuances.
Marketplace Facilitation & Wayfair Laws
The survey also found that awareness and impact of marketplace facilitator laws have dropped among small businesses and increased in larger businesses.
Marketplace facilitator laws began to appear in 2017, but have dramatically increased since Wayfair, with every state with economic nexus legislation now also implementing marketplace facilitation legislation. This shifts the obligation to collect and remit sales tax to the marketplace instead of the individual seller. As we reported on in a recent blog, part of what makes the marketplace facilitator laws confusing is that legislators didn’t write the laws for the myriad ways companies transact business in this space. Things like the taxation of services and rentals, to name a few, weren’t necessarily considered in the passed legislation. So in some cases, taxpayers end up having to work with states to make sure they’re complying with badly written laws. Just like economic nexus laws, even though every state with sales tax now has them, they vary depending on the state. For example, some states (such as Connecticut and Hawaii) require third-party sellers to register and file sales tax returns, even if they don’t have a physical presence in the state. Oftentimes the trouble lies more in the documentation even than in the actual collection of tax. But, documentation is key and in an audit situation, companies want to make sure they are covered currently, as it is much harder to go back and try to pull documentation at a later date..
The Future Of Economic Nexus Legislation
If we have learned anything the past four years, it is that the tax landscape is unpredictable and constantly changing. Tax legislation will most likely continue to evolve as state governments look for new ways to generate revenue. Just like we have seen complications arise for marketplace facilitators as a result of the Wayfair decision four years ago, we expect to see additional sales tax obligations and economic nexus complications come up for digital products, services, NFTs and the metaverse, to name a few.
Still Have Economic Nexus Questions?
As you can see, even four years later, businesses can create economic nexus in a state without realizing it. Even if you are aware that you have nexus across multiple states, it can be difficult to know where to begin in your analysis and overall compliance. Working with an experienced team of state tax consultants like Miles Consulting Group is a great way to do this correctly. If you have questions about your economic nexus tax liability or have any other state sales tax compliance questions, please contact us today. We’re happy to clarify any multi-state tax issues you’re trying to navigate.
