Article

The Influence of Wayfair on Sales and Use Tax

June 5, 2024
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Key Takeaways

  • The Wayfair ruling overturned the physical presence requirement for sales tax collection and allowed states to adopt economic nexus tests based on revenue or transactions.
  • Most states have enacted marketplace facilitator laws, which require platforms facilitating sales to collect and remit sales tax, rather than the marketplace sellers.
  • Businesses need to identify the relevant jurisdictions, assess nexus, analyze taxability, develop a compliance strategy, and consider other potential tax impacts.

The US Supreme Court’s ruling in Wayfair, Inc. et al. altered the sales and use tax landscape. Because of that ruling, it is now possible for states to collect sales tax from out-of-state sellers without a physical presence in their state.

The Impact of Wayfair on Sales and Use Tax

States now have broader authority to require online retailers to collect and remit sales tax on taxable sales. Businesses without a physical presence may now be subject to sales or use tax collection and remittance responsibilities in many jurisdictions. This is particularly notable for businesses with large retail or eCommerce sales, such as businesses selling SaaS, cloud and digital goods or digital services.

Since Wayfair, states have adopted an economic nexus test based on revenue and/or transactions thresholds. A common approach is to require the collection and remittance of sales tax when a seller reaches either $100,000 in revenue or 200 transactions in one calendar year.

In addition, almost all states have adopted marketplace facilitator laws, which require platforms that facilitate sales to collect and remit sales tax, rather than imposing this obligation on the marketplace seller. While states are beginning to provide more guidance on sourcing issues and clarifying the responsibilities between sellers and marketplaces, the implications for the filing responsibilities of these companies are profound.

The History of Wayfair

The State of South Dakota v. Wayfair, Inc., Overstock.com, Inc., and NewEgg, Inc. (SD v Wayfair, Inc.) challenged the physical presence requirement of Quill Corp. v. North Dakota, which prohibited requiring out-of-state retailers to collect sales taxes on behalf of a state without some minimum physical connection with that state.

In the U.S. Supreme Court’s 5-4 Wayfair decision, the Court ruled in favor of South Dakota’s law requiring certain internet sellers with no physical presence in the state to collect South Dakota sales tax.

Next Steps for Wayfair

In recent years, states with a sales tax have been revisiting their initial post-Wayfair laws on nexus thresholds. Fortunately, and perhaps in recognition of the burden a transactional threshold creates, many states are eliminating this measure of economic nexus.

For example, Wyoming and Indiana have recently decided to eliminate their transaction threshold, leaving only a threshold based on revenue. However, the revenue threshold for some states can be scaled based on the calendar year, and states use different measures to determine whether the revenue threshold has been met. For example, some states look to gross revenue, gross receipts, or taxable sales.

How You Can Remain Compliant with Wayfair

Steps your company can take to ensure compliance include:

  • Identify relevant jurisdictions
  • Assess nexus
  • Analyze taxability
  • Develop a compliance strategy
  • Consider other potential tax impacts

Wayfair’s impact is significant, and compliance can be complex. Our team of sales and use tax professionals can help you address your compliance needs and address your unique tax situation.

Frequently Asked Questions on Sales Tax Reform

There are many questions to consider when it comes to sales tax reform and its impact on your organization. Here are a few of the most common questions.

Which sales count towards the economic nexus thresholds?

Most states simply use the term “sales” and do not specify if sales to resellers count towards the thresholds. A conservative approach is to assume that all sales would count towards the thresholds.

Do individual items count towards the number of transactions?

Most states have specified the number of transactions for their threshold. In addition, most states have not defined what is a “transaction”, although a reasonable assumption could be that an invoice is a transaction and not the individual items listed on the invoice.

Am I required to collect all local taxes in addition to state taxes?

Most states are requiring that remote sellers collect all applicable taxes including local taxes. This should be addressed by the state if you are required to register.

I no longer meet the threshold. How long until I can stop filing?

Based on state information available, once you have met a threshold, you are required to continue filing as long as you are in business or until you cease business in the state. Most states have a rolling nexus provision which requires you to file zero returns for a year or other time frame after you cease business in the state.

Once I meet a threshold are my previous sales subject to tax?

Typically, once a threshold is met, the tax liability is based on future sales, not historical sales.

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State Thresholds Related to Wayfair

State Revenue Threshold Transaction Threshold Effective Date Notes
Alabama $250,000   10/1/2018  
Alaska $100,000 200 1/1/2020* While the state does not impose a sales or use tax, several local jurisdictions do. Enactment date the later of ARSSTC or the jurisdiction's adoption of ARSSTC.
Arizona $200,000 in 2019
$150,000 in 2020
$100,000 in 2021 and thereafter
  10/1/2019 Arizona has a scaled revenue threshold.
Arkansas $100,000 200 7/1/2019 Arkansas's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
California $500,000   4/1/2019 California's transaction threshold dropped as of April 25, 2019.
Colorado $100,000   6/1/2019 Colorado's transaction threshold dropped as of April 14, 2019.
Connecticut $100,000 200 12/1/2018 Connecticut's economic nexus standard is met when both the revenue threshold and the transactional thresholds are met.
Delaware       Delaware does not impose a sales or use tax.
District of Columbia $100,000 200 1/1/2019 The District of Columbia's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Florida $100,000   7/1/2021  
Georgia $100,000 200 1/1/2019 Previously $250,000 effective 1/1/2019 through 12/31/2019. Georgia's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Hawaii $100,000 200 7/1/2018 Hawaii's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Idaho $100,000   6/1/2019  
Illinois $100,000 200 10/1/2018 Illinois's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Indiana $100,000   10/1/2018 Indiana's transaction threshold dropped as of January 1, 2024.
Iowa $100,000   1/1/2019 Iowa's transaction threshold dropped as of July 1, 2019.
Kansas $100,000   7/1/2021 Kansas DOR released a notice on August 1, 2019 - any remote seller selling tangible personal property or services into the state must register and begin collecting tax by October 1, 2019, however, the state did not specify a sales or transactions threshold. Kansas has since passed economic nexus legislation, effective July 1, 2021.
Kentucky $100,000 200 10/1/2018 Kentucky's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met. 
Louisiana $100,000   7/1/2020 Louisiana's transaction threshold dropped as of August 1, 2023.
Maine $100,000   7/1/2018 Maine's transaction threshold dropped as of January 1, 2022.
Maryland $100,000 200 10/1/2018 Maryland's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Massachusetts $100,000   10/1/2017 Prior to 10/1/2019, the economic threshold was $500,000 and 100 or more separate transactions. On and after 10/1/2019, the economic threshold decreased to $100,000 and dropped its transactional threshold.
Michigan $100,000 200 10/1/2018 Michigan's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Minnesota $100,000 200 10/1/2018 Minnesota's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Mississippi $250,000   9/1/2018  
Missouri $100,000   1/1/2023  
Montana       Montana does not impose a sales or use tax.
Nebraska $100,000 200 4/1/2019 Nebraska's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Nevada $100,000 200 11/1/2018 Nevada's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
New Hampshire       New Hampshire does not impose a sales or use tax.
New Jersey $100,000 200 11/1/2018 New Jersey's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
New Mexico $100,000   7/1/2019  
New York $500,000 100 6/21/2018 New York's economic nexus standard is met when both the revenue threshold and the transactional thresholds are met.
North Carolina $100,000 200 11/1/2018 North Carolina's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
North Dakota $100,000   10/1/2018 North Dakota's transaction threshold was dropped as of January 1, 2019.
Ohio $100,000 200 1/1/2018 Ohio's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met. Prior to 8/1/2019, the economic threshold was $500,000. However, it decreased to $100,000 on and after 8/1/2019.
Oklahoma $100,000   7/1/2018 Prior to November 1, 2019: $10,000 or more in sales subject to sales or use tax during previous 12 months.
Oregon       Oregon does not impose a sales or use tax.
Pennsylvania $100,000   7/1/2019  
Rhode Island $100,000 200 7/1/2019 Rhode Island's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
South Carolina $100,000   11/1/2018  
South Dakota $100,000   11/1/2018 South Dakota's transaction threshold was dropped as of July 1, 2023.
Tennessee $100,000   10/1/2019 Previously $500,000 effective 10/1/2019 through 9/30/2020.
Texas $500,000   10/1/2019  
Utah $100,000 200 1/1/2019 Utah's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Vermont $100,000 200 7/1/2018 Vermont's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Virginia $100,000 200 7/1/2019 Virginia's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Washington $100,000   1/1/2018 Washington's transaction threshold was dropped as of March 14, 2019. Note: WA Business & Occupation Taxes had stated economic nexus thresholds beginning in 2010 for services ($250,000), 2015 for Wholesale sales, and 'click-thru nexus' online sales ($267,000), 2017 for retail sales ($267,000).
West Virginia $100,000 200   West Virginia's economic nexus standard is met when either the revenue threshold or the transactional thresholds are met.
Wisconsin $100,000   10/1/2018 Wisconsin's transaction threshold was dropped as of February 20, 2021.
Wyoming $100,000   2/1/2019 Wyoming's transaction threshold was dropped as of July 1, 2024.

About the Author(s)

Melissa Menter Photo

Melissa Menter

Senior Manager
Melissa has over 20 years of experience helping clients with a broad range of tax issues. She has both Big Four and in-house Fortune 500 corporate tax experience, which gives her the perspective of being able to see a problem and its possible solutions from multiple angles. Melissa is a creative thinker and enjoys crafting customized, practical solutions to complex tax problems.