What Is Wayfair Tax?

The Small Seller Exception and the State of Business in Alabama

The Supreme Court of the United States overturned the physical presence rule for state sales taxes. Without a physical presence in the state, it is possible for virtual contacts to give the state jurisdiction to require out-of-state retailers to collect and remit sales and use tax on sales to in-state customers. Alabama law requires marketplace facilitators with Alabama marketplace sales in excess of $250,000 to collect tax on sales made by or on behalf of its third-party sellers or to comply with use tax reporting and customer notification requirements.

The reporting requirements for the marketplace must be complied with by January 1, 2019. The marketplace facilitator can choose to begin collecting under the SSUT in October of 2018, if a remote seller can demonstrate that the marketplace facilitator is collecting and remitting on its behalf. If you don't meet the Small Seller Exception, you will need to register and collect the tax in North Dakota on October 1, or 60 days after you meet the threshold.

A vendor that uses state software to make sales in another state and has a gross receipt in excess of $500,000 from sales of tangible personal property to Ohio customers is considered to have a "nexus" to the state. The Wisconsin Legislative Fiscal Bureau stated in a memo that the statutory definition of a retailer has been changed because of the Wayfair decision. The Wyoming Department of Revenue is planning to enforce the licensing of remote sellers on October 1, according to a report.

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Excise taxes and the definition of marketplace facilitators

States that have adopted potentially over broad definitions of marketplace facilitators have not attempted to enforce them against those who are falling outside of a more reasonable definition. Some companies have to decide whether the letter of the law is intended to be exclusion from its reach or if it is actually an obligation. Excise taxes can attach to the same purchase and introduce complexity into marketplace transactions.

Telecom companies have excise taxes on their services which a third-party seller may not be able to handle. The issues are the most important in extending tax obligations to remote sellers. If a state retroactively applies collection and remittance obligations, it would be a poor policy and invite a Due Process Clause challenge.

In the event of errors arising from reliance on state- provided software, and in cases where a seller or a facilitator has good faith reasons to expect that the other is collecting and remitting, there is a need for liability protection. What seems like mere words may matter. In a few states where local governing bodies define and administer their own tax codes, consolidation of sales tax authority is necessary.

Simplistic measures, safe harbors, software solutions, and other expedients are important in states where tax authority is already concentrated at the state level. Delaware, Montana, New Hampshire, and Oregon do not have sales taxes. Alaska does not have a state sales tax, but some local governments impose sales taxes with their own bases and administration.

What can a business do?

The business community preferred the narrow definition. Some states are doing a narrow definition while others are doing a broad definition. States use to identify businesses that open on Main Street but haven't yet registered.

Someone sees them and asks if they're registered. They will tell them how to register if they're not. It's a different world with the internet.

You have sellers in all over the country and the world who sell to customers in your state. There is no easy way to identify those that are selling at high volumes and exceed the state's economic threshold. Richard Cram said there were two impacts.

Everybody else in the economy has gone down. The states have immediate impact on their resources because of the huge decline in revenues. They are holding off on audits because of the lack of resources.

The COVID-19 has accelerated the trend towards the internet marketplace. People buying things on the internet that they wouldn't have hesitated to get in the car and go pick up at the store are doing it. Internet sales revenues have become more important.

The Case for a New Sales Tax Threshold

The Supreme Court decided on June 21, 2018, that sales tax collection would be changed by the case. South Dakota could impose its sales tax collection requirements on remote sellers without regard to their physical presence. The Supreme Court's 1992 decision in the case of Quill Corp. v. North Dakota, which required vendors to have physical presence in a state before they could collect and remit sales tax, was overturned by the decision.

The implications of the Wayfair decision to assist businesses with coming into and maintaining sales tax compliance in a postWayfair world is outlined in a practical guide. The fact that some states base their thresholds on the most recent year makes it difficult to figure out if the threshold is over or under. Some include both nontaxable and taxable sales.

It is possible that businesses had a relationship with states before the remote-seller standards came into play. Potential prior-period exposure may be larger than exposure related to remote-seller nexus. The earlier businesses act to determine where they may have a sales tax obligation, the more limited their potential exposure for prior periods will be.

There are a few ways to move forward if a business determines that it has a state that has not fulfilled its sales tax obligations. More states may offer an amnesty program in the future for businesses that may not have been able to register and begin filing by the effective dates, due to the number of states that have enacted remote-seller related legislation. Tax amnesty and voluntary disclosure programs give companies the chance to resolve prior-period exposures and begin fulfilling their sales tax filing obligations without worry.

The potential for an audit to last indefinitely is a deterrent, but it is also associated with sales tax noncompliance. Many states have criminal penalties for businesses that don't collect and pay sales tax. Criminal penalties are imposed on individuals who fail to file sales tax returns in some states, and personal liability is imposed on corporate officers in many states.