Supreme Court Wayfair Case Looms Over Business Five Years Later

It’s been five years since the Supreme Court ruled in favor of states imposing sales tax obligations on remote sellers in South Dakota v. Wayfair Inc., which overturned a physical presence rule that prevented states from taxing sales by out-of-state sellers.

The decision didn’t increase the amount of sales tax complexity in this country, but it did expose everyone to the complexity that already existed. In repealing the physical presence requirement, the Wayfair decision enabled states to tax remote sales by businesses with no physical presence in the state.

With the increasing scope of rules and regulations to keep track of, it’s important to know how the post-Wayfair landscape is affecting the business community. Avalara recently commissioned a survey of 1,000 businesses across the US and UK to understand the full impact of the Wayfair decision and resulting laws since 2018.

Forty-six states, parts of Alaska, and Washington, D.C., now enforce economic nexus and marketplace facilitator laws. But with only a marginal movement by states toward simplicity since the decision, an overall lack of uniformity with Wayfair laws across the country is still a prominent factor affecting businesses and their customers.

It’s (Still) Complicated

In 2023, confidence around explaining sales tax obligations is rising steadily. About 55% of survey respondents said they can explain all online sales tax obligations to someone outside their organization, while 33% said this was the case for some of the obligations.

While the business community continues to grow in their education and understanding of new rules and regulations, they are also in overwhelming agreement that the complexity is still too high.

The survey found that 72% of businesses believe that online sales tax requirements remain complex and confusing. The complexity looms so high that 66% of US businesses say they’ve had trouble expanding their operations domestically due to the tax regulations and complexity.

Before Wayfair, a business would collect sales tax where they were physically present even if they made sales everywhere. Being physically present was always something the business could control, allowing them to prepare for new sales tax compliance issues. Because Wayfair laws use the location a sale takes place as the trigger for tax compliance, businesses must base their sales tax determinations on the customer’s location.

Most businesses are spending more time and money on compliance because of economic nexus and marketplace facilitator laws and this complexity is changing how they operate.

While businesses reported a number of changes due to the complexity of Wayfair regulations, one of the most glaring outcomes is that they’re changing consumer prices.Forty-nine percent of businesses say that they’ve increased prices that customers are charged. Forty-four percent say they’ve increased the prices due to marketplace facilitator laws.

Technology Is Helping

The proliferation of advanced technology to manage tax has allowed states to avoid eliminating complexity, but at a cost. The survey shows that to help with calculating and reporting online sales tax rules, 72% of businesses have invested in technology, tax compliance, and automation software.

This rise in automation usage indicates that more businesses are realizing that Wayfair’s continual wave of rules and regulations is too complex to manage manually. Fifty-five percent of businesses surveyed that invested in compliance tools have implemented accounting solutions. Fifty-one percent are using automated tax compliance solutions, and 40% are using tax functionality available in their billing or payment system tools.

Businesses must keep anticipating more complicated online sales tax laws and prepare accordingly. With little movement toward uniformity in the first five years, it’s unlikely that any major momentum resulting in consistent rules among states will happen anytime soon.

The case is: South Dakota v. Wayfair Inc., U.S., No. 17-494, decision 6/21/18

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Scott Peterson is vice president of US tax policy for Avalara.

We’d love to hear your smart, original take: Write for us.