Earlier this summer, the United States Supreme Court released its highly anticipated decision in South Dakota v. Wayfair, Inc., a case the media and other pundits have referred to as the “tax case of the millennium.” In a five-to-four decision, the Supreme Court overturned the physical presence standard set forth in its own decision in Quill Corp. v. North Dakota. In that case, the U.S. Supreme Court ruled that a state could require a business to collect sales tax only if it had a physical presence in that state.
The Wayfair case also opens the door for states to enact economic nexus, which could complicate things for manufacturers. The situation is changing by the day, but as it stands now, we know that:
- Each state may have different thresholds (e.g., dollar level of sales or number of transactions). As of right now states appear to be following the standards set forth in South Dakota.
- Each state may have different definitions
- More states may follow Wisconsin, which is in the process of creating an administrative tax rule to address the issue, instead of legislation
- Congress likely will not intervene
- 28 (and counting) states currently have economic nexus provisions
Nearly all manufacturers could be affected by the Wayfair decision. To determine whether or not your business is one of them, consider these questions:
- Do you exclusively sell to resellers or distributors that need to collect sales tax exemption certificates? If so, are you fully aware of the processes and procedures in place around these certificates?
- Do you engage in e-commerce or remote sales?
If you answered ‘yes’ to any of these questions, you should be taking steps now to understand how the Wayfair decision affects your unique situation.
To make matters even more complicated for manufacturers, registering for sales tax now opens the door for states to address prior years — potentially racking up further tax, interest and penalties. Sales tax collection registration also precludes you from participating in voluntary disclosure programs to address prior years.
With all these factors at play, it’s important to first understand the nexus requirements of all the states in which you do business in not only from a sales tax perspective but any income, franchise, or gross receipts taxes that could also be imposed. This can be challenging so it’s worth enlisting the help of an experienced and knowledgeable SALT specialist — one who can assess your situation and make recommendations to help you stay compliant.
Take a proactive approach to your SALT strategy. Contact Wipfli today.