Sales tax responsibilities have undergone a seismic shift recently due to the landmark court case known as the Wayfair case. This case could have far-reaching implications for your business.
Significance of the Wayfair case
Before Wayfair, in order for a state other than your home state to compel you to collect and remit sales tax to that other state, you had to have a presence in the other state. Presence (known as nexus) generally meant you had inventory or equipment in the other state, and/or you had employee(s) working in the other state (making deliveries or installations, performing a service, and so on). In 2018, the Supreme Court upheld a South Dakota law that had added a third hook to its sales tax nexus rules — if you had too much sales to customers residing in South Dakota (annually: $100,000 or more of goods or services or engaged in 200 or more separate transactions). Besides adding the new hook called “economic nexus”, the Wayfair decision allowed each state lots of room for creativity. Almost all states have enacted laws to capture Wayfair sales tax dollars, and no two states’ laws are the same.
The U.S. Supreme Court’s decision in Wayfair is affecting companies that meet that state’s nexus standard. Ask yourself, do I have sales of goods or services to customers in other states that exceed the state’s specific economic sales or activity thresholds? Exempt sales are generally included in determining threshold; therefore, if gross sales exceed the threshold, any sale without an exemption certificate is deemed taxable. Hence, it is critical that you obtain exemption certificates even from out-of-state customers who are exempt under the other state’s sales tax rules.