This Legal Update marks Part Three, and our final installment of the three-part series, Navigating the Post-Wayfair world. In Part One, we discussed how states have responded to the Supreme Court's landmark sales and use tax decision, South Dakota v. Wayfair, Inc. In Part Two, we illustrated how Wisconsin has responded to the Court's decision. In Part Three, we offer practical advice for businesses navigating the post-Wayfair world.
All businesses should be assessing how the Court's decision impacts operations. Generally, remote sellers can be any business that sells goods or services from one state to another. Though much of the focus post-Wayfair has been on the sale of tangible personal property (i.e., goods), many states also assess sales tax on various services—including telecommunication, management and utility services. Some states have even begun to tax digital goods as well.
Furthermore, even though the Wayfair case dealt with large retailers, smaller and middle-market retailers are impacted as well. Even businesses that are not resellers, likely do business with vendors and suppliers who are adjusting their operations in light of the decision. In this Legal Update, we will offer step by step guidance for conducting an economic nexus analysis. We will also discuss changes that should be anticipated regardless of your businesses location on the supply chain. Let there be no doubt, Wayfair has changed the landscape for everyone.
Be Proactive
As we wrote in Part One, over 30 states enacted economic nexus laws since mid-2018, most of which have already taken effect. The narrow compliance period in a post Wayfair business environment has created urgency for affected businesses. Thus, businesses not currently collecting and remitting sales tax in states where economic nexus exists may face increased compliance issues and a possible growing deferred liability.
The risks of non-compliance run high. Non-compliant businesses can be liable for directly paying amounts owed out of pocket (rather than from the customer). Non-compliant businesses can also be hit with hefty penalties and fees. Moreover, many states impose personal liability on those operating the business (i.e., officers, directors, partners, managers, or other "responsible persons"), with automatic veil-piercing statues, for the failure to collect and remit applicable taxes.
We know now that in this post-Wayfair world, companies doing business in multiple states will almost certainly have expanded sales tax obligations. Rather than waiting to receive a nexus questionnaire in the mail from one of the many states passing legislation, businesses need to accept that the cost of doing business will likely increase and begin to take proactive action.
Proactivity begins with having the proper resources in place. Assess whether current processes—software, staffing, external resources—are sufficient to navigate the post-Wayfair world.
