Prior to the 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, businesses were required to collect and remit sales tax if they had physical presence in a state. However, with its Wayfair decision, the Court overturned its prior decisions and held that economic nexus with a state was enough of a connection to impose a sales tax liability on a business. As a result, states were now able to draft their individual laws regarding what constitutes economic nexus.
Based on recent conversations with ecommerce companies that are working through economic nexus issues, and as addressed in the recent Senate Finance Committee hearing, the most significant impact of Wayfair is on small business remote sellers.
“The different standards and thresholds between states and localities can create a burdensome and complex system that makes compliance difficult for small businesses. ”
impact on small businesses
Unfortunately, certain ecommerce businesses have struggled more than others with navigating the changes to thresholds and compliance disparities amongst the states. In particular, small businesses find it difficult to analyze their sales and transactions without a standardized threshold across all states.
Although a few states have a sales only threshold, the typical thresholds are $100,000 in sales and/or 200 transactions. Some states are “and” states which require that both the sales and transaction thresholds be crossed to create economic nexus, whereas with “or” states, only one of the thresholds needs to be crossed.
Some states require that returns be filed monthly, others quarterly, and still some filing requirements could be annually. Additionally, once a business is registered for sales tax, the states require a return to be filed, even if there are no sales in that state, creating a “zero return”.
senate finance committee
Thankfully, the difficulty of compliance and the dissatisfaction of small businesses post-Wayfair has caught the attention of Congress. On June 14, 2022, U.S. Senator Mike Crapo, a member of the Senate Finance Committee, gave remarks at a hearing addressing the burden and complexities in a post-Wayfair world.
Crapo stated that “[s]ellers now must either learn to comply with the rules of myriad tax jurisdictions where their customers reside, or hire specialized advisors. This compliance can be time-consuming and expensive…”
While we’re hopeful for an eventual resolution, in the interim it’s important that small businesses have the support and guidance they need to keep their business compliant. Our tax consulting professionals have a trove of in-depth experience and knowledge to help navigate the murky waters in a post-Wayfair world, especially as applied to small businesses.