Wayfair Decision Impact on Remote Sales
Join Gary Bingel, EisnerAmper’s National SALT leader, and Tim Schuster to learn more about the Supreme Court’s decision and how to prepare for the challenges and opportunities to come.
Tim Schuster: Hello and welcome to our podcast on the taxation of e-commerce and the recent Supreme Court ruling on the subject matter. I’m your host Tim Schuster and with us is Gary Bingel, the partner in charge of EisnerAmper’s State and Local Practice Group. In this series, we’ll discuss the recent U.S. Supreme Court ruling on the taxation of remote sales, such as, e-commerce. So, Gary, could you please give us a 30,000-foot overview of the Wayfair case.
Gary Bingel: Sure. So the Wayfair case was as internet retailer case regarding sales tax. Prior to Wayfair there was the Quill case from 26 years ago that said in order to be subjected to a state sales collection requirements you had to have some sort of physical presence, and all that meant was you could have anything from bricks and mortar to remote employees to transient employees in the state or even affiliates and that was the prerequisite in order to be subjected to sales tax. In Wayfair, the issue was Wayfair didn’t have any of those things, all they had was an economic presence in state through sales, and the Supreme Court came down and abolished that physical presence requirement and said an economic presence is enough. You no longer need physical presence in order to be subjected to sales tax in a state.
TS: Why should I care about these changes?
GB: As a business owner, you should care just because you’re going to have a much larger nexus footprint for sales tax and possibly other taxes under Wayfair. Previously, if you just had physical presence in, let’s say, two or three states, it’s very possible that now, depending upon your level of sales, you could be subjected to sales tax in all states that have one—so in 45, 46 states, which is a much broader requirement.
TS: Significant compliance requirements.
GB:Exactly. And what that may mean is you may have to make significant investments in your systems to be able to comply with all of these new requirements. So it’s going to be a lot more responsibilities placed on business owners as far as sales tax is concerned.
GB:Also, it may have other ramifications in other areas.
TS: Interesting. How does this impact consumers and state budgets?
GB: Consumers, technically it doesn’t really impact much.
GB:Previously, if I bought something from an out-of-state seller and they didn’t charge me sales tax I was supposed to self-remit use tax. As a practical matter, few people did. You had states that were losing a lot of that revenue because it wasn’t being collected, and people weren’t self-remitting. States are now looking at filling in those budgets, and filling in those shortfalls could be anywhere from several billion to tens of billions of dollars, depending upon the estimates. So I would expect a lot of states are looking at filling in their budgets with this new revenue. From a consumer standpoint, technically they didn’t pick up any more tax or have to owe any more tax, but as a practical matter you’re going to be paying more because people failed to self-remit before.
TS: What does this actually mean for my business, as an owner?
GB: You have to start looking at where you’re going to be filing and looking at your nexus footprint in a much broader light now, as well as making sure you have the systems in place to comply with the expanded requirements for sales tax. You may need to make significant investments in your systems, new software or new people just to keep up with not just the additional registrations and filings but the audits that may come with it.
TS: Are there any unforeseen implications of this decision?
GB:I think the biggest unforeseen implications right now are in areas outside of sales tax. I think states are going to become more embolden to apply this ruling to other types of taxes, such as income taxes. Even though many states have had economic presence requirements for income taxes, it really hasn’t been litigated as much from the sales tax area.
GB:Once you’re on the rolls for sales tax, states are going to start saying ‘what about income taxes,’ and can we start imposing income taxes on all of these new sales tax collectors.
TS: Interesting. Do you have any last-minute tidbits you want to tell our listeners about Wayfair?
GB: I would say the biggest thing is it’s never too early to start trying to get into compliance. Even if you’re looking at some states where the implementation date may not be until January, it may take several months to get your systems up to par, to do the registrations. You may have to look at specific taxability rules for your products in additional states, so it’s never too early to start looking at some of those things.
TS: Thank you so much Gary.
TS: And thank you for listening to our podcast on taxation of e-commerce. If you have any questions or there’s a topic you’d like us to cover, email us at email@example.com. Visit EisnerAmper.com for more information on this, and a host of other topics, and join us for our next EisnerAmper podcast series.