What Are Some of the Consequences of Wayfair?
States will likely be emboldened to enforce economic nexus in other tax areas such as for income taxes and net worth taxes. In addition to new filings being required, there will also be registrations for the filings, and additional audit activity. Companies may also find their software systems require modifications to keep up with the new information that will be needed. Companies need to be prepared to address these needs.
Tim Schuster:So Gary, what are some other consequences of Wayfair?
Gary Bingel:I think probably the most significant one is that states are now going to be emboldened to apply it to other types of taxes. Although Wayfair itself was a sales tax case, it was not explicitly limited to sales taxes. And I think that states are now going to start to seek to apply it to other types of taxes, like income tax and net worth tax. So I think companies need to be prepared for that. Companies also will likely have to make significant investments in additional resources. Either additional people to deal with the increased compliance and, or increased investments in their IT systems to make sure they're getting the information they need for the filings.
Currently approximately 30 states will adhere to Wayfair in some way. While some states enacted specific nexus statutes, others felt their current provisions were broad enough to include wayfair’s economic nexus thresholds.
Businesses need to determine how Wayfair may apply to them by evaluating their nexus footprint, as well as where they should be filing based on any threshold (dollar threshold or transaction threshold) that is met.
While many view Wayfair as applying only to internet retailers, Wayfair extends beyond e-commerce to service companies and software companies with nexus in more than one jurisdiction, increasing record keeping and exemption certificates.
According to Wayfair, since a nexus footprint can now be established through economic contacts alone, businesses need to evaluate their nexus footprint in each state and evaluate their tax filing requirements and audit requirements.
The wayfair decision is the recent US Supreme Court decision out of South Dakota which overturned the physical presence requirement of Quill, and held that physical presence is not required to create nexus for sales tax purposes.
The Quill decision was the 1992 US Supreme Court decision out of North Dakota which held that some type of physical presence was required in order to create nexus with a state for sales tax purposes.