Sales Tax - The Wayfair Decision

In business, we expect change, but with sales tax over the last few years, change is an understatement. Business owners may simply charge and remit sales tax and think that is the end of it, expecting that their accountant or bookkeeper will keep them out of trouble. Consumers then just expect that what the retailer is charging in sales tax is correct. There are several assumptions going on here and we all know what happens when you assume too much, so let’s dig into why we have those assumptions and how we might need to change our way of thinking.

Before 2018, the basic rules for sales tax were that if you had a physical presence in a state then you created nexus, and if you did not have a presence in some other state, but you happened to have sales in those states, then the end user was not charged sales tax since you did not have nexus. Now that is a VERY simplistic answer to how sales tax was done previously but we don’t want to dwell in the past.

Previously, the word nexus only related to Physical Nexus but now we have Physical Nexus, Economic Nexus, Click-through Nexus, Affiliate Nexus and Marketplace Nexus.

So, what does the court case say and how does it affect you and your clients?

In the court case, the state of South Dakota said that they were missing sales tax revenue on goods/services that were sold in their state even through the seller did not have a physical presence within the state. The state asserted the stance that they had a right to impose the sales tax collection on the entity that was creating/sending the goods into their state, and although it is the ultimate responsibility of the end user for the sales tax, states only have recourse against the companies selling the goods and services and not the end users.

The parameters that determine economic nexus became of paramount importance and can be very complex and confusing. Furthermore, since this court case in South Dakota, all of the other states have had to decide how this ruling will affect their state, so the rules are evolving and changing frequently. What you knew about sales tax yesterday is not necessarily true today.

Since the Wayfair ruling, more than 40 states have enacted economic nexus laws.

So, how do you keep up with all of the law changes????

There are two options to making sure that legal requirements are met. First, you can do frequent and continual research. The second option, and by far the easiest route, is to implement a sales tax preparation solution that takes the research and updates off your shoulders.