What is the Wayfair Decision?
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. Nexus can now be created through economic contacts alone. While Wayfair was a sales tax case, its holding was not expressly limited to sales taxes.
Tim Schuster:So, what is the Wayfair decision, and what did it change?
Gary Bingel:So, the Wayfair decision was a direct challenge to the Quill Case, which came out of South Dakota. In it, the Supreme Court overturned the physical presence requirement of the Quill case. So now, nexus can be established through economic presence alone. In the Wayfair case, the thresholds at issue were a hundred thousand dollars in sales, or two hundred separate transactions. And the supreme court ruled that those were sufficient to create economic nexus in a state for sales tax purposes. Now, it wasn't just limited to sales tax and could apply to other taxes. And those thresholds may actually be lower than that. The Supreme Court just said those thresholds were sufficient. They didn't set them as a minimum or maximum in any way.
As a result of the Wayfair decision, states will be emboldened to enforce economic nexus not just in sales tax, but income tax and net worth taxes as well, and companies should prepare for additional audit activity and investment in their IT systems.
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 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.