On June 21, 2018, the U.S. Supreme Court issued a momentous decision that affects remote sellers and service providers across the country and the digital economy at large. The Court’s South Dakota v. Wayfair decision allows states lawfully to require remote sellers to collect and remit sales and use taxes if they have an economic nexus, usually defined as a certain number of transactions and/or a minimum amount of revenue, with the destination state.
After South Dakota’s law was upheld, other states enacted similar laws. Today, 42 states have economic nexus for sales and use tax, some with enforcement deadlines approaching (Colorado, Pennsylvania, and Texas have enforcement deadlines of June 1, July 1, and October 1, respectively). If 42 separate tax rates sound like a lot, imagine the 16,000 state and local tax rates in effect at any time. Adding to this administrative nightmare, tax rates can change on a monthly basis, generating as many as 600 to 700 changes throughout the year.
Companies across industries and of all sizes have to contend with the fallout resulting from Wayfair, but it has been particularly onerous for middle-market companies that often don’t have existing internal processes and procedures in place to address these challenges.