How Many States Does Wayfair Apply To? When Does it Kick In?
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, and thus merely issued administrative guidance. We believe all states will adhere to wayfair in some way within the next 6-12 months. Most states are enforcing economic nexus for sales taxes starting in late 2018 or early 2019.
Tim Schuster:How many states does this apply to and when, approximately, is this going to kick in?
Gary Bingel: Well, currently there's, about thirty states that have said they're going to be following Wayfair in one form or another. Some through legislation, other through just administrative pronouncement. And we do expect all of the states that have some type of sales tax to actually be following it within the next six to twelve months. States generally have picked one of two starting periods. Some have picked October 1st of 2018. Others have picked January 1, 2019 as their go live date. There's a couple states sort of looking to implement it retroactively, with which there may be some constitutional issues, so we'll have to wait and see how those play out. Really, the main question is not when does it kick in, but when can you start to comply? Given that there's going to be increased information system requirements as well as registrations and such. So the real question is how quickly can you get that information out, get registered and get up and running?
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.
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.