May 25, 2020

The outcome of South Dakota v. Wayfair, Inc. (2018) affected each state’s nature of sales tax collection for remote sellers with or without a physical presence. Since nexus laws were adopted, many are expanding their sales tax laws through three developments. 

Taxing services

In the current business and technological climate, states have adopted laws for companies that serve sales of services are more relevant than tangible goods services. If such sales are taxable in the states, business sellers and professional services are now subject to obeying their nexus law to avoid potential tax exposure.

Income and franchise taxes

These critical tax groups are still in development, but it still affects businesses who register for, collect, and remit sales tax. Many states had “factor-presence thresholds” and were not at risk of economic nexus before Wayfair’s decision. They are now are expected to adopt economic nexus standards for income and franchise taxes to avoid potential sales tax exposure.

Sales tax compliance

On top of applying economic nexus laws, many states have adopted “market-based sourcing” for income and franchise tax purposes, resulting in businesses having to file income and franchise tax returns in their states.

Takeaway

The ruling of Wayfair has shaped online sellers and other businesses to follow nexus standards. At least 36 states such as California, Hawaii, Pennsylvania, Washington, and Texas have enacted economic nexus laws with varying  enforcing dates. Businesses must understand tax compliance and their states’ income and franchise tax nexus standards to fulfill the reporting requirements on time.