The U.S. Supreme Court’s ruling in South Dakota v. Wayfair was the most consequential development in state and local tax law in more than a decade and the ruling will have far-reaching implications for taxpayers for many years to come.
While the Wayfair ruling is already a year old, state and local tax consultants with global accounting firm Grant Thornton LLP said June 18 that the full implications of the landmark ruling continue to evolve. Remote sellers, marketplace providers, and other taxpayers in the e-commerce arena need to remain vigilant as states continue to modify their tax codes to take full advantage of the opportunities created by the high court.
“There are a lot of things from Wayfair that have yet to be decided,” Mark Arrigo, Grant Thornton’s state and local tax national managing partner, said during a webinar focusing on the first anniversary of the ruling. “It’s not going away. The complexities are going to be unfolded over the next year or so as more and more pieces are legislatively brought through.”
Peter M. Watt-Morse, a partner with Morgan, Lewis & Bockius LLP in Pittsburgh, said most of the 45 states administering sales and use taxes have modified their tax codes in the last year. The new obligations being imposed and the rapid pace of change can be challenging for e-retailers. However, businesses that ignore these new obligations do so at their own peril.
“Given the general complexity of state tax laws and the inconsistency from state to state, as well as the uncertainty as to whether or when uniformity across states may come to pass, businesses with online sales need to carefully monitor both the legal landscape and the processes established for administration and compliance for out-of-state transactions,” Watt-Morse said in a June 7 client bulletin.
A New Reality
The comments reflect a new reality in state sales tax administration in the aftermath of the June 21, 2018, decision in Wayfair.
The ruling tossed out the court’s 1992 physical presence standard affirmed in Quill Corp. v. North Dakota, which limited the ability of states to tax remote sales. The majority in the 5-4 ruling suggested strongly that South Dakota’s law requiring remote sellers to collect sales tax if they had more than $100,000 in in-state sales or 200 transactions would pass constitutional muster.
Since the ruling, dozens of states have passed versions of South Dakota’s law or started enforcing existing economic threshold laws and rules they already have on the books. Many states are also rushing to impose duties on marketplace facilitators such as Amazon.com Inc., eBay Inc., and Etsy Inc. that host sellers on their sales platforms.
Sherry Lam, state and local tax director at Grant Thornton, pointed to several quickly changing features of tax law and tax administration that businesses should watch in the next few years.
- Transaction Thresholds. A growing number of states are dropping the 200-transaction threshold and adopting compliance thresholds linked only to sales revenue.
- Foreign Sellers. It is clear that retailers based in foreign jurisdictions aren’t exempt from sales tax duties under Wayfair-inspired statutes. However, states could face challenges enforcing their statutes against these foreign retailers.
- Local Sales Taxes. Several states, including Colorado and Louisiana, have dozens of local taxing jurisdictions anxious for their slices of the Wayfair pie. Retailers need to monitor how these local taxes are administered and whether the rules conflict with the Supreme Court’s concerns over undue burdens on remote sellers.
- Marketplace Provider Rules. Nearly every state is expected to impose tax collection duties on marketplaces, but there are wide inconsistencies between the states and confusion within the emerging state requirements. Sellers should expect the states to issue a stream of guidance documents in the near term about their marketplace programs.
- Enforcement Dates. Lawsuits focusing on the economic nexus rules in Massachusetts and Ohio have been filed because the enforcement dates precede the Wayfair ruling.
- Mergers and Acquisitions. Wayfair could have broad implications for deals involving the sale or purchase of a business. Due-diligence assessments focusing on compliance with Wayfair statutes will become common.
Lam said Wayfair would likely have an impact on the long-term legal strategies adopted by states as they develop, implement, and enforce new tax initiatives.
“I think this really emboldened the states,” Lam said. “Wayfair challenged a Supreme Court law of the land for 50 years and they prevailed. So what’s to stop them from going down the path, where they can push the limits.”