That ruling came from the case of South Dakota v. Wayfair, Inc., Overstock.com, Inc., and Newegg, Inc. -- often just referred to as Wayfair -- which focused on whether the physical presence requirement for sales tax should stand, a precedent previously affirmed in Quill Corp. v. North Dakota and others that were decided at a time when very few Americans had access to the internet. Wayfair has been called the “tax case of the millennium” for effectively killing Quill and ruling that states have broad authority to require online retailers to collect sales tax.
The changes from Wayfair affect two targets: remote sellers and marketplace facilitators.
For remote sellers, which are out-of-state sellers that sell online, as of October 1, 2019, the laws changed in seven states to require them to charge sales tax subject to specific criteria. The new state rules are as follows:
Marketplace facilitators are those consolidated sites like Amazon Marketplace that make it possible for smaller retailers to reach a broad audience without the need for a separate sales platform. As of October 1, 2019, the laws changed in 14 states to require marketplace facilitators to charge sales tax, often subject to criteria. They are:
With those changes, of the 45 states that have a general sales tax, 43 have now adopted an economic nexus law or rule since Wayfair. Two states, Florida and Missouri, have general sales tax but no economic nexus (as of this writing).
Changes in online sales tax collection have come quickly, and they can be challenging for retailers. Sellers need to determine which laws affect them by accounting for sales by state (and in some states, tracking by jurisdiction). Tax compliance just became extremely burdensome for sellers, especially small-to-midsize businesses.
Reach out to your BGW teammates to make sure that you’re following the rules. If you use software, make sure that it’s tracking the right kinds of sales and in the right places. Ask questions, and be open to new suggestions. Some sellers are coming to the conclusion that it’s better to abandon their own websites and sell directly on the marketplace since large platforms tend to be better set up to collect and remit tax. In addition, while remote sellers are expected to comply immediately with the new rules, all states except one with marketplace facilitator laws allow up to three years to become 100% compliant (through phase-ins). It’s not a sure thing (to abandon your own site), but exploring creative tax-saving solutions with a qualified accounting professional is always worth the effort.
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Are you selling online? How will Wayfair impact you? Share your comments below.