A Guide to the Wayfair Tax

November 7, 2018

In June 2018, the U.S. Supreme Court ruled on a case that will affect many online retailers across the nation. Previously, states were prevented from requiring that online and other remote sellers collect sales tax unless the seller had a physical presence in that state.

The decision in the new case, South Dakota v. Wayfair, changed all that. It allows states to require remote sellers that meet a certain threshold to collect sales tax, even if they don’t have a physical presence in that state. It’s what many are now calling the “Wayfair Tax.”

Does my company have to collect the Wayfair Tax?

In its ruling, the Supreme Court said that states can’t force a remote seller to collect sales tax from customers within the state unless the seller has a “substantial nexus” in the state and the tax collection does not place “undue burdens” on the remote seller. But the court didn’t set parameters on these two thresholds.

The court did note that South Dakota’s current thresholds of $100,000 in sales or 200 transactions was ample to establish “substantial nexus” in that state. It also said that these thresholds were sufficient to protect small sellers from any undue burden to collect sales tax. So, if your company doesn’t meet these thresholds, you probably don’t need to worry about collecting Wayfair Tax – at least for now.

What states do I have to collect sales tax in?

Although the Supreme Court ruling applies narrowly to South Dakota, other states are now following suit. To be able to require collection of the Wayfair Tax, however, states need to have statutes on the books regarding remote sellers. Some states have statues, with varying threshold requirements, while others as yet have none.

The court’s lack of a clear definition of the threshold requirements creates a gray area, which might be resolved in future lawsuits or by federal legislation that could clarify the issue. It’s unlikely, though, that federal legislation will be passed anytime soon.

When do I need to start collecting tax?

If you are a qualifying company, the dates on which you need to start collecting taxes varies by state. Some states have been pondering whether to make the sales tax collection retroactive, but most states are content not to do so. The Supreme Court indicated that South Dakota should probably not seek to make the collection of sales tax from remote sellers retroactive.

Many state revenue departments are working to provide guidance to remote sellers so that they can begin collecting tax. The National Retail Federation is gathering together as much information as it can – a one-stop shop for Wayfair tax collection details.

What if I sell through a marketplace?

So far, only nine states require marketplace providers to collect tax on behalf of remote sellers who employ their marketplace for sales. If you meet the threshold requirements and sell through a marketplace as well as directly to customers, you need to be aware of the differing laws that pertain to various sales.

How do I register and collect tax?

One of the best resources for registering and collecting the Wayfair Tax is the Streamlined Sales Tax Project. A visit to the SSTP website shows a number of useful resources, including the capability to easily register for collecting taxes in 24 states, taxability and rate information, and links to taxing authority websites.

Whether you are a remote seller or local one, a knowledgeable bookkeeper or accountant can be of great service in trying to navigate the various rules and statutes regarding sales tax collection.

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