For a case that is being upheld as a bringer of clarity, the Wayfair decision is certainly providing a good bit of uncertainty as well.
States, ecommerce sellers, retailers and service providers are all working to sort out the practical implications of a landmark Supreme Court decision that tossed out a seller’s physical location as the sole determinant of tax nexus.
Legislation, Litigation On Tap
For starters, only 16 of the 45 states that collect sales tax have laws on the books defining standards for ecommerce sales tax collection, like the 2017 South Dakota law that prompted the case. The rest will likely be scrambling to craft and pass legislation, although most are out for legislative recess. Meanwhile litigation is sure to ensue over various state and local laws, tax collection enforcement and definitions of business and product exemptions.
Meanwhile many are calling on Congress to act and provide additional clarity and uniformity on ecommerce taxation, including revisiting legislation like the 2013 Marketplace Fairness act that passed the Senate but hit a wall in the House. This type of federal legislative relief was also advocated by Chief Justice John Roberts in his dissenting opinion.
States Will Vary in Nexus Definitions
While the Wayfair decision did not codify South Dakota’s annual threshold of $100,000 in sales value or 200 transactions that triggers a nexus or tax collection requirement by remote sellers, it was held up as an exemplar in the ruling. However, that threshold will be much easier for merchants to reach in a more populous state such as New York or California.
“One of the reasons why the Supreme Court liked the thresholds in the South Dakota statute is because they’re preventing (the state) from capturing a lot of smaller businesses,” said Nancy Manzano, director of the chief tax office at Vertex Inc., a provider of tax software solutions for businesses. “In order to get to $100,000 in receipts in a state like South Dakota, you have to be a big retailer. So, the question becomes, is that threshold good enough to protect small sellers in more populous states?”
Catalog Companies Cry Foul
The American Catalog Mailers Association (ACMA), a longtime supporter of Quill, said the Wayfair decision will adversely impact thousands of smaller ecommerce merchants. It called South Dakota’s tax threshold of 200 orders a year, for example, “ridiculously small.”
“Small catalog and online retailers with little or no presence beyond their headquarters will be hurt the most – some will be forced out of business,” said ACMA President and Executive Director Hamilton Davison in a statement. “Rural Americans, shut ins and older consumers will be particularly hard hit by this decision … A merchant might sell only 100 $20 orders and now be forced to comply with laws well outside its capacity and be subject to horrendous complexity.”
While opponents of the Wayfair decision cite the burden of compliance with tax laws as well as the dampening effect of impact of higher prices, there are many tools in place to help them administer tax collection. For instance, TaxCloud provides a service that’s paid for by the 24 states that have adopted the Streamlined Sales and Use Tax Agreement (SSUTA) and is free to most merchants; there are many other solutions as well.
Joy on Main Street
Craig Shearman, vice president of government affairs and public relations for the National Retail Federation, said the NRF has been seeking “a level play field on sales tax collection for years” which the Wayfair decision delivers.
“We think retailers should play under the same tax rules regardless of how they deliver merchandise, through stores, online or a catalog,” Shearman said. “The government shouldn’t discriminate against one type (of retailer) or pick winners and losers.”
As for the argument about the impact on smaller online merchants, Shearman said mom-and-pop stores are the ones that have been disadvantaged in the 26 years since Quill.
“They say they have the burden of collecting taxes, but every small retailer on Main Street has had to collect them,” he said. “We never believed it was unreasonable to ask online retailers to comply, especially when exemptions are make for the smallest ones.”
Status Quo for the Defendants, Amazon
Wayfair, the lead defendant in the case, said in a statement the company “welcomed the additional clarity” of the ruling.
“Wayfair already collects and remits sales tax on approximately 80% of our orders in the U.S., a number that continues to grow as we expand our logistics footprint,” the company said. “As a result, we do not expect (the decision) to have any noticeable impact on our business, as it may on other retailers who do not currently collect and remit sales tax.”
Overstock.com, another defendant, also said the decision won’t materially affect its business and it was prepared to comply with the outcome.
“To lessen the potential impact of today’s ruling on internet innovation, Congress can, and should, pass sound legislation allowing states to accomplish their aims while still permitting small internet businesses to thrive,” said Overstock.com executive and board member Jonathan Johnson in a statement.
Even less affected by the ruling is Amazon, which anticipated it by collecting tax on its first-party sales in all 45 sales tax states, while methodically expanding convenience and stickiness. The company also collects taxes on behalf of third-party sellers in Washington and Pennsylvania that have “marketplace facilitator” laws, according to Recode, with other states expected to follow suit; that will likely crimp 3P sales.
“Today’s decision culminates years of tireless work by the retail community to reverse a pre-internet era rule that distorts free markets and puts local brick and mortar stores at a competitive disadvantage with their online-only counterparts,” said Deborah White, general counsel and president of the Retail Industry Leaders Association (RILA)’s Retail Litigation Center. “This was the right case and the right time for the court to act, and we couldn’t be more pleased with the outcome.”