It’s been more than 10 months since the U.S. Supreme Court’s Wayfair decision, a landmark sales-and-use tax nexus case out of South Dakota with implications for Central Massachusetts businesses of all sizes.
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It’s been more than 10 months since the U.S. Supreme Court’s Wayfair decision, a landmark sales-and-use tax nexus case out of South Dakota with implications for Central Massachusetts businesses of all sizes and industries selling products or services remotely across state lines. A business located in Central Massachusetts may find it now has tax filing requirements in other states.
In short, Wayfair, the popular e-commerce home goods company, lacked a physical presence in South Dakota, but its sales and transactions satisfied the statutory threshold amounts to collect and remit South Dakota sales-and-use taxes. Prior to its decision, the Supreme Court, in 1992, said a business needed a physical presence in a state in order for the state to collect taxes from the company.
So, a business with one location in Worcester shipping products to South Dakota may now be required to collect and remit South Dakota sales taxes.
State legislation
Presently, nearly 40 states of the 45 states imposing sales tax have enacted legislation similar to South Dakota. This rapid influx of economic nexus legislation has created a heavy struggle for Central Massachusetts businesses previously only needing to worry about collecting and remitting sales and use taxes if they had a physical presence in the state where they were conducting business. This is a real hardship, especially for small and middle market Central Massachusetts companies grappling for compliance with the law.
Federal legislation
Several federal legislative bills have been introduced since the Wayfair decision to provide exceptions, for instance, if a company’s sales are less than $1 million. Under these federal bills, compliance with Wayfair would be mitigated or even excluded for a smaller business. At this time, however, these measures to provide some relief to small businesses are not on the books.
Impact on international companies
Another can of worms opened by the Wayfair decision is the impact on international companies – a U.K. company selling to the U.S. through Amazon, for example. The U.K. business may not have to file U.S. income tax returns but could very well be obligated to collect numerous states’ sales tax on its product or service transactions into the U.S. Much discussion is needed on how foreign companies should comply.
Marketplace facilitators
The Wayfair decision largely applied to a stand-alone remote seller. States have now taken the decision one step further. After enacting their remote seller economic nexus laws, the next wave of economic nexus laws go after those companies facilitating a remote seller’s sales using their e-commerce platform. Such marketplace facilitator laws are intended to go after the Amazons of the world, requiring the facilitator be the responsible party to charge and collect tax for all of the remote sellers use its online sales platform. More than a dozen states, so far, have enacted such legislation – which is anticipated to grow throughout the year.
A good number of Worcester businesses, seeking nexus consulting and tax liability analysis in the wake of the Wayfair decision, have contacted their tax advisors looking for guidance as they navigate these new tax collection waters.
Holden resident Alan Osmolowski is a tax partner at the regional CPA firm Blum Shapiro. He can be reached at aosmolowski@blumshapiro.com or 508-868-1086.
