Wayfair: Challenges, strategies, opportunities
August 14, 2019 | Faye Hayhurst, CPA
It’s hard to overstate the impact of the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc.
(June 21, 2018), which allows states to require a remote seller with “economic and virtual contacts” in the state (economic nexus) to collect and remit sales tax, even if it has no physical presence in the state.
The implications of Wayfair
continue to change, and unfortunately, it’s likely to get more complex before it gets better. On top of that, the answer to many questions related to Wayfair
could be answered by either “it depends” or “it’s changing.”
Here are some things to consider when interpreting what Wayfair
means for you or your clients.
Keep an eye on state thresholds
In the original case, South Dakota had set thresholds of $100,000 in sales or 200 separate transactions in the state to determine whether a business had nexus and thus, were required to collect sales tax. Many other states followed suit and adopted the same thresholds.
In a bit of good news, some states are scrapping the transaction threshold and going to a single monetary threshold. As of July, these states include Colorado, North Dakota, South Carolina and California. In the notable case of California, it has not only removed a transaction threshold but increased the monetary threshold to $500,000.
The point is these thresholds continue to evolve. Find a product or source that updates as changes happen.
Defining gross sales
Every state with a sales tax has a sales threshold for out-of-state sellers. While only sales within that state are included in the sales threshold, most states want a business to include exempt or nontaxable sales in the state as part of the computation. For businesses that have a significant amount of sales that aren’t subject to sales tax (e.g., sales to merchants for resale, or sales of a nontaxed item, such as certain food items), this can quickly lower the effective threshold for sales subject to sales tax.
Defensive strategy - file even if zero tax is owed
For many sellers, it’s intuitive to not begin filing a sales tax return in a state until absolutely necessary (when the threshold has been crossed). A fact to keep in mind, however, is that generally a state’s statute of limitations does not begin to run until a return is filed. In an audit, if a state determines that a seller should have been collecting sales tax from a date perhaps years earlier, it’s possible for penalties and interest to exceed the actual tax.
Filing a return, even one showing zero tax owed, starts the statute of limitations running (although fraud or significant understatement of tax owed can extend the statute period). Consider filing in states where sales haven’t yet exceeded the threshold, especially if business is expected to grow in those states.
It’s possible we could see legal challenges to the Wayfair
ruling from one or more small businesses asserting undue burden. But until that happens, businesses need to develop strategies to ensure they are regularly assessing their compliance requirements. Where sales tax is required to be collected for multiple states, technology is going to be key to compliance.
CPAs in public practice have a golden opportunity to develop a specialty in sales and use tax, since the market for such expertise grew exponentially in the wake of Wayfair
. Any CPA firm that does not have the expertise should partner with one that does. Many businesses are in dire need of assistance. Who better than their trusted business adviser -- you -- to point them in the right direction?
Not sure where to begin? We have a few resources and articles on our SALT resources webpage
for MNCPA members (login required).
Topics: Consulting, SALT
Faye Hayhurst, CPA
Faye Hayhurst is the MNCPA director of finance and administration. She is committed to using numbers to tell relevant stories, although she also employs words, charts and occasionally clothing to communicate a message. While some have questioned her about the pressures of being the CPA for the MNCPA, Faye considers presenting financial information to fellow CPAs a dream job. Outside of storytelling with numbers, Faye enjoys directing her church's handbell choir, visiting national parks and other scenic places, and checking out the chocolate products at Trader Joe's. Faye can be reached at 952-885-5540 or firstname.lastname@example.org.
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